History and Social Science, Part 38

Question 1: Discuss in depth, price discrimination.

Answer 1: When a supplier of the same goods and services uses a multitier price schedule to sell to different buyers price discrimination exists. Airlines provide a prime example, selling services for the same flight at many different prices depending on purchase date, age of the buyer, days traveled, and many other factors. Price discrimination is an economic strategy designed to increase economic profitability in a mixed market. It does not mean unfair or illegal manipulation of prices.Sometimes a reverse price discrimination occurs, when a supplier charges the same price to different buyers, although the costs of the supplier to do so differ. One would imagine that price discrimination could only occur if a supplier held a monopoly; however in a complex economy with a so many pricing factors and decisions at work discrimination in pricing occurs almost everywhere. Sometimes this variation in prices can help lower prices for consumers, but this is not always the case.

Question 2: Describe an example of price discrimination using commercial airlines.

Answer 2: As everyone who purchases tickets on an airline, price discrimination is rampant. The same flight from San Francisco to New York may offer a bewildering number of prices based on such factors as:1. Length (number of days) of the trip.2. Age of the traveler.3. Day of the week traveled.4. Purchase date of the ticket.5. Number of stops enroute to destination.6. Special fares and discounts not available to all travelers.7. Class of service offered on the flight.8. Flexibility of ticket.Airlines sell into both business and vacation travel markets, and often differ their prices significantly. The success of on-line internet travel agencies has highlighted the price discrimination for airline tickets. A quick glance at one of these websites will show multiple examples of airline price discrimination.

Question 3: Discuss Adam Smith and value as it relates to economics.

Answer 3: Value is the key economic element that drives many business decisions. Unfortunately, value may be difficult to define. meaning different things to different people. It is however the measurement by which utility, or want satisfying power may be defined. Some classical economists, including Adam Smith, tied labor to value, postulating that true value was the amount of work it takes to produce a good or service for sale. Although this is one legitimate manner in which to measure value, it is not the only one. An exception would be the relative ease of making emeralds, compared to the complexity of producing aircraft. The element of scarcity is also a vital component of the value of a good or service.Some market theorists claim that price itself tell the value of a good or service. Believe that countless economic variables are factored into determining a price for a specific good or service, and this price equals the value. In some sense value is a determinant of the individual's belief in the want satisfying power of any good or service.

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