Question

Producers of processed foods and related consumer goods often use coupons as a means of price discrimination. Although coupons are widely used in the United States, that is not the case in other countries. In Germany, coupons are illegal. a. Does prohibiting the use of coupons in Germany make German consumers better off or worse off? O A. German consumers are definitely better off because price discrimination leads to a larger market. OB. German consumers are definitely worse off because price discrimination lowers prices. OC. German consumers are definitely better off because output decreases with price discrimination. OD. German consumers are definitely better off because price discriminating firms capture additional consumer surplus. O E. German consumers may be better or worse off because price discrimination may actually increase consumer welfare depending on the number of different prices charged and the distribution of consumer demand. b. Does prohibiting the use of coupons make German producers better off or worse off? O A. German producers are better off because coupons increase the cost of production. O B. German producers are worse off because coupons help firms capture additional consumer surplus. OC. German producers are better off because coupons increase price competition among firms. OD. German producers are better off because coupons effectively lower prices. O E. German producers are worse off because coupons increase economic surplus.

Answer 1

Question (a):- E
Reason:- price discrimination increases the consumer welfare by increasing the ability of the poor consumers to afford the things and also facilitated the rich consumers to get the things of their desired quality. Hence, the condition can never be better off.
Also the price discrimination does not necessarily lower the prices. It also increases the prices.

Question(b):- E
Reason:- This is because price discrimination helps both consumers as well as producers. For consumers it is mentioned in above answer. And for producers, it facilitates the producers to charge as high as the consumers can pay thereby, maximizing their prices.
Hence the situation can never be better off.
Option b is an incomplete reason but the complete reason lies in option E.