KRUGMAN'SMICROECONOMICS for AP*

Price Discrimination

Margaret Ray and David Anderson

Micro:

Econ:

2763

Module

What you will learnin this Module:

• The meaning of price discrimination.

• Why price discrimination is so prevalent when producers have market power.

What is Price Discrimination?

Charging different price to different consumers for the same product.

Price Discrimination

Lenny’s is a local restaurant famous for their “Slam Grand” breakfasts. There are only two market segments that enjoy the Slam Grand: senior citizens and college students.

Assume that: 1) Lenny’s MC=$2 2) There are 100 seniors willing

to pay $4. 3) There are 100 college students

willing to pay $8.

Elasticity and Price Discrimination Why are some

consumers not as willing or able to pay for a product?

Hint: It has to do with differences in price elasticity of demand.

Perfect Price Discrimination Perfect price

discrimination: each consumer is charged exactly his/her maximum willingness to pay.