Offering a student discount is a form of price discrimination that does not entirely displease students.  This EconModel application demonstrates that price discrimination is also profit maximizing behavior for merchants.

Model Link:  Price Discrimination
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Printable PDF Exercises

The application begins by showing you how to graph the demand and profit curves for two groups of customers separately and in the aggregate.  You then determine the profit-maximizing strategy under two scenarios:

• The Base Case -- maximizing profits for a single price
• Price Discrimination -- maximizing profits by charging different prices to different customers

The numerical results confirm the graphical presentation and allow you to calculate the profits to be gained from price discrimination.

 

Classic Economic Models

    Contents

Microeconomics

Introduction
    Overview of Micro Models

Supply and Demand
    Basic Supply and Demand
    Who Pays a Sales Tax?
    The Cobweb Model and
        Inventory-Based Pricing

Theory of the Firm
    Perfect Competition
    Monopoly and
        Monopolistic Competition
    Price Discrimination
    The Demand for Labor

Theory of the Consumer
    Two Goods - Two Prices
    Intertemporal Substitution
    Labor Supply, Income Taxes,
        and Transfer Payments

Macroeconomics

Introduction
    Overview of Macro Models

Models in Chronological Order
    The Classical Model
    The Simple Keynesian Model
    The Keynesian IS/LM Model
    The Mundell-Fleming Model
    Real Business Cycles
    The IS/MP Model
    The Solow Growth Model

Financial Markets
    Utility-Based Valuation of Risk
    Mean-Variance Analysis:
        Risk vs. Expected Return
    Fixed Income Securities:
        Mortgage/Bond Calculator
    Growth Investments:
        Present Value Calculator

Resources