Elmdale, a small isolated town, has one psychiatrist. For a 45-minute consultati

Question

Elmdale, a small isolated town, has one psychiatrist.

For a 45-minute consultation, the psychiatrist charges a man twice as much as a woman.

The psychiatrist ______ practicing price discrimination because ______.

A. is; all monopolies practise price discrimination

B. is not; menmen and womenwomen are willing to pay a different price for the same service

C. is not;menmen could travel to another location and pay a cheaper price

D. is; menmen and womenwomen are paying a different price for the same service

E. is not; each person is not paying the maximum price that they are willing to pay

The psychiatrist _____ using resources efficiently because ______.

A. is not; the sum of consumer surplus and producer surplus is maximized

B. is not; no deadweight loss is created

C. is; no deadweight loss is created

D. is; the sum of consumer surplus and producer surplus is maximized

E. is not; a deadweight loss is created

This pricing system ______.

A. takes some consumer surplus from the psychiatrist and redistributes it to the consumer as economic profit

B. takes some consumer surplus from the consumer and redistributes it to the tpsychiatrist as consumer surplus

C. takes some consumer surplus from the consumer and redistributes it to the psychiatrist as economic profit

D. increases consumer surplus

E. does not change the amount of consumer surplus

Explanation / Answer

Charging different prices to different groups of consumers is an example of monopoly price discrimination . The physiacriatist enjoys monopoly powers because he is the sole service provider in the area .

D. is; men and women are paying a different price for the same service

Monopoly is a cnsition of market inefficiency . It creates dead weight loss . In perfect price discrimination where each consumer is charges their reservation price there is no such loss but here it is second degeree discrimination where consumers are divided in two groups . All surplus cannot be captured .

E. is not; a deadweight loss is created

Using this policy the doctor can extract some of the consumer surplus if not fully and turn it into his economic profit since he does not charge single market price to all his consumers .

C. takes some consumer surplus from the consumer and redistributes it to the psychiatrist as economic profit

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