If firms that practice second degree price discrimination use more block prices,
A) both consumer surplus and welfare will decrease.
B) both consumer surplus and welfare will increase.
C) consumer surplus will decrease, but welfare will increase.
D) consumer surplus will increase, but welfare will decrease.

Question

Quizplus · Accepted Answer

Second degree price discrimination involves dividing consumers into groups based on certain characteristics and charging a different price for each group. Block pricing is a common method of price discrimination where consumers are charged a fixed price for certain quantities of a good or service.

When firms use more block prices in their pricing strategy, consumer surplus is likely to decrease because consumers who are willing to pay more than the block price are charged the same price as those who are willing to pay less. This reduces the total amount of surplus that consumers receive from the transaction.

However, welfare may still increase because firms can capture more of the consumer surplus through their pricing strategy. This means that firms may have more resources to invest in improving the quality of their product or service, which can increase overall welfare in the market.

If Firms That Practice Second Degree Price Discrimination Use More