Reference no: EM131100706
ECONOMICS REPLY TO EACH STATEMENT IN A 100 WORDS EACH.
1. Price discrimination happens around consumers every day, even though it may not be realized. When companies sell the same product to different customers for a different price, this is known as price discrimination. Price discrimination often occurs in grocery stores due to the loyalty of the customer.
Most grocery stores offer a discount or rewards card to customers (Mahmood, 2014). Typically the only customers that take advantage of this are the customers loyal to that store. There is an Ingles close to my house, and though Aldi's has cheaper prices, I frequent the Ingles if I only need to pick up a few items. Ingles has a rewards card. Each time I visit the store, I look for items that are discounted with the rewards card in order to gain the cheaper price for the products I need.
The condition for price discrepancy, in this case, is difficulty in reselling. Most customers will not attempt to resell groceries they bought for a higher price. They will instead enjoy the discount they were given by being a loyal customer as they use the groceries they bought.
2. An example of price discrimination is Auto Insurance. There are many different variables when it comes to auto insurance pricing. One of the main variables is age (Mary and Norma, 2006). The price consumers pay for auto insurance differs with age. A 16-year-old driver will pay more than a 30 driver for the same auto insurance plan. Younger drivers pay more for auto insurance, because they take more risks than drivers in their 50's. Throughout the years, I have personally seen the difference in the price I pay for auto insurance the older I get.
Price discrimination with auto insurance meets the condition of market segmentation. For adult drivers there are more substitutes, so their demand curve is more elastic. Adults have an easier time obtaining auto insurance, because they already have a driving history, and they have reduced more risk factors than younger drivers. Younger drivers have more of an inelastic demand curve because there are only certain insurance companies who will insure young drivers and most have to have someone else over the age of 18 on their policy with them.
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