Question

In many of the product markets discussed, the higher prices during “high demand” times also reflect an increased cost or difficulty supplying the product during those times due to capacity constraints or higher input prices.

Provide at least three examples and briefly discuss why costs might go up during “high demand” periods. (Recall that capacity constraints can be thought of as a very high MC above some output level!)

Can you think of any examples of markets where time-varying prices might arise to pass along higher marginal costs that occur during certain periods even if there is little or no variation in demand or willingness-to-pay over time? Should we still consider this variation in price over time to be an example of price discrimination?

Answer 1

The price of the goods is determined by the intersection of demand and supply.Any Changes in the Demand and Supply will affect the Price of the goods.The time period short run and long run in production process determine the supply of the goods in the market. When supply in the market is less then the price of goods will be very high due to limited goods.

The following example shows the reason which causes the price of goods goes up.

1. The over exploration of the resource while using in the production process example labors or capital used beyond its capacity and hence cost of the production goes up
2. Availability of the resource example shortage of the inputs in production process results in good price rising
3. Outdated technology in production process hence raises the cost of the production.

The above example shows the barrier factors in the production process.The shortage of the supply goods in the market due to limitations in production process hence it is not priced discrimination.

Price discrimination followed in monopoly market with the intention of benefits to the customers.