Which of the following statements is true of price discrimination?

• A. Price discrimination always leads to a decrease in producer surplus.
• B. Price discrimination is illegal in all forms and in all countries.
• C. Price discrimination can only occur in perfectly competitive markets.
• D. Price discrimination occurs when a seller charges different prices to different consumers for the same good, not based on cost differences.

Answer: (D)

Verified step by step guidance

1. Understand the definition of price discrimination: it occurs when a seller charges different prices to different consumers for the same good or service, and these price differences are not due to cost differences.
2. Evaluate the first statement: 'Price discrimination always leads to a decrease in producer surplus.' Consider how price discrimination can affect producer surplus by potentially increasing it through capturing more consumer willingness to pay.
3. Evaluate the second statement: 'Price discrimination is illegal in all forms and in all countries.' Reflect on the fact that legality varies by jurisdiction and that some forms of price discrimination are legal and common.
4. Evaluate the third statement: 'Price discrimination can only occur in perfectly competitive markets.' Recall that price discrimination typically requires some market power, which is absent in perfectly competitive markets.
5. Conclude that the true statement aligns with the definition of price discrimination as charging different prices to different consumers for the same good, not based on cost differences.