During the winter months, the price of natural gas is high. During the summer months, the price of natural gas is low. This could be an example of:
A)first-degree price discrimination.
B)second-degree price discrimination.
C)third-degree price discrimination.
D)bundling.

Question

Quizplus · Accepted Answer

This is an example of third-degree price discrimination, where the price varies based on the time of year. The seller is charging higher prices during the winter months when demand is higher and lower prices during the summer months when demand is lower. First-degree price discrimination would involve charging each customer their willingness to pay, which is not feasible in a natural gas market. Second-degree price discrimination involves different prices based on quantity purchased, which is also not applicable in this scenario. Bundling involves selling multiple products together at a discounted price, which is also not applicable here. This is an example of third-degree price discrimination, as the seller is charging different prices to different groups of buyers based on seasonal variations in demand. This is permitted as long as the seller is not preventing buyers in a particular group from switching to another group to benefit from the lower price.

During the Winter Months, the Price of Natural Gas Is