Question

Tom is a junk remover who occasionally finds rare antiques to sell. He uses an online auction site to sell each antique for the highest possible price customers are willing to pay. Tom is engaging in _____, and this leads to _____ consumer surplus.a) perfect price discrimination; very highb) perfect price discrimination; zeroc) imperfect price discrimination; very highd) imperfect price discrimination; zero

Answer 1

Answer:

Option (b) is correct.

Explanation:

There are three types of price discrimination:

(i) First degree price discrimination or Perfect price discrimination

(ii) Second degree price discrimination

(iii) Third degree price discrimination

Perfect price discrimination refers to a situation in which the selling price of the product is equal to the price that a consumer willingness to pay for the product. This is a situation in which there is no consumer surplus.

Consumer surplus = Actual price paid by the consumer - Willingness to pay for the product