Which of the following best describes 'price skimming' in the context of introductory economics?

• A. Setting a low initial price to quickly attract a large number of buyers
• B. Setting a high initial price for a new product and lowering it over time
• C. Charging different prices to different customers based on their willingness to pay
• D. Selling products at a price equal to marginal cost

Answer: (B)

Verified step by step guidance

1. Understand the concept of 'price skimming' in microeconomics: it refers to a pricing strategy where a firm sets a high initial price for a new product to maximize profits from customers willing to pay more, then gradually lowers the price over time to attract more price-sensitive customers.
2. Compare the given options with the definition of price skimming: identify which option describes starting with a high price and then reducing it over time.
3. Eliminate options that describe other pricing strategies: for example, setting a low initial price to attract many buyers is penetration pricing, charging different prices based on willingness to pay is price discrimination, and pricing at marginal cost relates to perfect competition or efficiency pricing.
4. Confirm that the option 'Setting a high initial price for a new product and lowering it over time' matches the definition of price skimming.
5. Conclude that the best description of price skimming is the strategy of starting with a high price and then lowering it over time to capture different segments of the market.