Chapter 11: Problem 15

Price discrimination _____. a) often works to the advantage of the poor b) generally helps rich customers c) is very hard to find in the United States d) is illegal in the United States

Short Answer

Expert verified

The correct answer is: Price discrimination often works to the advantage of the poor (option a).

Step by step solution

Understand the statement

First, let's understand what price discrimination means. Price discrimination is a strategy used by firms to charge different prices for the same good or service to different customers based on their willingness to pay, income, or other factors. Now let's analyze each option:

Option a: Often works to the advantage of the poor

Price discrimination can sometimes work to the advantage of the poor, as companies may offer lower prices to customers with lower incomes. Examples include student discounts or senior citizen discounts. However, this is not always the case. Keep this option; we'll decide after checking the other options.

Option b: Generally helps rich customers

Price discrimination does not generally help rich customers. It is aimed at maximizing profit for the firm by extracting as much consumer surplus as possible. Rich customers are usually charged a higher price because they have a higher willingness to pay. So, this option is incorrect.

Option c: Is very hard to find in the United States

Price discrimination is not very hard to find in the United States. It exists in various industries such as airlines, hotels, movie theaters, and even online retailers. For example, airlines charge different prices for the same seat based on when it was purchased and who is buying. Retailers, both online and offline, offer discounts to specific customer groups like students, military personnel, or seniors. So, this option is inaccurate.

Option d: Is illegal in the United States

Price discrimination is not illegal in the United States in most cases. There are some exceptions under antitrust laws and consumer protection laws, but generally speaking, it is a legal business practice. So, this option is also incorrect.

Choose the correct option

After analyzing all the options, we can conclude that the correct option is (a) often works to the advantage of the poor. Although it's not always the case, price discrimination strategies are sometimes designed to offer lower prices to customers with lower incomes, which can benefit the poor.

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