Question

A firm engaging in third degree /segmentation price discrimination

1. Will offer more units and charge a lower price to the group whose demand is more inelastic
2. Will offer fewer units and charge a higher price to the group whose demand is more ineleastic
3. Will offer fewer the same number of units to all groups but will charge a higher price to the group whose demand is more elastic
4. Will offer fewer units and charge a higher price to the group whose demand is more elastic

Answer 1

Option B.

• Third degree price discrimination is a type of price discrimination in which a firm's sells same products to different customers at different prices based on their willingness and ability to pay.
• It charges higher rates for those people who have inelastic demand and sells fewer units while at the same time it charges lower rates and more units for those people with elastic demand.
• This is because, people with higher elastic demand may tend to consume less or their willingness to pay more falls when price's rise but those with inelastic demand will be unaffected by the changes in price's.