Translink is the operator of Brisbane’s public transport network. They operate a variety of services, including buses, trains and ferries. Currently fares on public transport are the same, regardless of the mode of transport. During peak hour (between 7 am and 9am), fares are approximately 20% more expensive due to high demand. Which of the following statements are true: If Translink knows the demand for trains is inelastic during peak period, they can easily use first degree price discrimination. If Translink decided to offer “first class” and “second class” to passengers on its trains, they would be third degree price discriminating. Translink is currently implementing peak load pricing. Translink should raise bus fares if it finds out that demand for buses is elastic.
Question
Translink is the operator of Brisbane’s public transport network. They operate a variety of services, including buses, trains and ferries. Currently fares on public transport are the same, regardless of the mode of transport. During peak hour (between 7 am and 9am), fares are approximately 20% more expensive due to high demand. Which of the following statements are true:
If Translink knows the demand for trains is inelastic during peak period, they can easily use first degree price discrimination.
If Translink decided to offer “first class” and “second class” to passengers on its trains, they would be third degree price discriminating.
Translink is currently implementing peak load pricing.
Translink should raise bus fares if it finds out that demand for buses is elastic.
Solution
The first statement is false. First degree price discrimination involves charging each consumer the maximum price they are willing to pay. This requires perfect knowledge of each individual consumer's demand curve, which is unlikely to be the case for Translink.
The second statement is true. Third degree price discrimination involves charging different prices to different segments of the market. By offering "first class" and "second class" options, Translink would be segmenting the market and charging different prices.
The third statement is true. Peak load pricing is a strategy where prices are increased during periods of high demand. Translink is doing this by charging higher fares during peak hours.
The fourth statement is false. If demand for buses is elastic, it means that consumers are sensitive to price changes. Therefore, raising bus fares would likely result in a significant decrease in demand, which could lead to a decrease in total revenue.
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