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Name the three forms of price discrimination

User Vitto
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Final answer:

Price discrimination can take the form of first-degree (each buyer is charged the maximum they are willing to pay), second-degree (prices vary by quantity or version), and third-degree (different prices for different groups based on demand elasticity). Market forces can motivate businesses to be less discriminatory to maintain profitability and reputation, and to avoid legal issues.

Step-by-step explanation:

The three forms of price discrimination are:

  1. First-degree price discrimination or perfect price discrimination, where a seller charges each buyer their maximum willingness to pay, capturing the entire consumer surplus.
  2. Second-degree price discrimination, which involves charging different prices based on the quantity purchased or the version of the product, such as bulk discounts or premium versions of products.
  3. Third-degree price discrimination, where a seller charges different prices to different groups based on their elasticity of demand, such as student discounts or senior citizen discounts.

Market forces can give a business incentives to act in a less discriminatory fashion in various situations. For example:

  • If a local flower delivery business observes that a substantial portion of its customers are from a certain demographic it previously held biases against, economic interests may compel the owner to cater to this market segment to maximize profits.
  • An assembly line that's facing labor shortages might be incentivized to hire workers from demographic groups it previously excluded to ensure sufficient staffing and maintain productivity.
  • A home health care service with a biased owner may find that paying unequal wages could lead to legal repercussions, a damaged reputation, or difficulty in retaining skilled employees, thereby offering a financial incentive to practice equitable wage policies.
User Ymmx
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