Final answer:
The correct answer is B. The example of third-degree price discrimination is an airline charging business passengers and vacation passengers in the economy class different prices, as these customer groups have different price sensitivities and demand elasticities.
Step-by-step explanation:
An airline charging business passengers in economy class and vacation passengers in economy class different prices. Third-degree price discrimination occurs when a seller charges different prices to different consumer groups based on their willingness or ability to pay, and these groups cannot resell the product or service to one another. This practice is based on identifiable and distinct consumer segments having differing elasticities of demand.
For example, businesses typically have less price sensitivity than vacationers, as the cost of travel may be borne by the company rather than the individual traveler. On the other hand, vacation travelers often plan their travels in advance and are more price-sensitive, looking for the best deals. An airline may use this information to charge higher prices to business travelers who often book last minute and have an inelastic demand, while offering discounts to vacation travelers who are sensitive to price changes to fill seats that may otherwise go vacant. This is considered third-degree price discrimination because it segments the market into two distinct groups based on their reasons for flying and then prices tickets differently for these groups.