CFA- economics

Price Discrimination

In first-degree price discrimination, the entire consumer surplus is captured by the producer; the consumer surplus falls to zero.

In second-degree price discrimination the monopolist offers a menu of quantity-based pricing options designed to induce customers to self-select based on how highly they value the product.

Third-degree price discrimination happens when customers are segregated by demographic or other traits. For example, some econometric software is licensed this way: A student version can handle only small datasets and is sold for a low price; a professional version can handle very large datasets and is sold at a much higher price because corporations need to compute the estimates for their business and are therefore willing to pay more for a license. Another example is that airlines know that passengers who want to fly somewhere and come back the same day are most likely business people; therefore, one-day roundtrip tickets are generally more expensive than tickets with a return flight at a later date or over a weekend.

Market structures

Monopolistic competition is a hybrid market structure. The most distinctive factor in monopolistic competition is product differentiation. Although the market is made up of many firms that compose the product group, each producer attempts to distinguish its product from that of the others, and product differentiation is accomplished in a variety of ways.

For most goods and services, the long-run demand is much more elastic than the short-run demand. For example, if gas prices rise, consumers cannot quickly change their mode of transportation but will likely do so in the longer run.

Measurement base

Historical cost: the amount originally paid for the asset
Amortized cost: historical cost adjusted for depreciation, amortization,, depletion, and impairment
Current cost: the amount the firm would have to pay today for the same asset
Realizable cost: the amount for which the firm could sell the asset
Present value: the discounted value of the asset’s expected future cash flows
Fair value: the amount at which two parties in an arm’s-length transaction would exchange the asset

Standard-setting bodies
Regulatory authorities