Question

Village, a small isolated town, has one doctor. For a 30-minute consultation, the doctor charges a rich person twice as much as a poor person.

Does the doctor practice price discrimination? Is the doctor using resources efficiently? Does the doctor’s pricing scheme redistribute consumer surplus? If so, explain how.

Answer 1

1. Does the doctor practice price discrimination?

Answer: Yes, charging different prices to rich people and poor people for the same service is price discrimination.

2. Is the doctor using resources efficiently?

Answer: The doctor is not using resources efficiently. Price discrimination creates a deadweight loss unless the producer can practice perfect price discrimination.

3. Does the doctor’s pricing system redistribute consumer surplus?

Answer: Yes. Because the doctor is setting the price closer to the maximum the consumer is willing to pay, each consumer receives less consumer surplus. The doctor is converting consumer surplus into economic profit.