3. A manager in a restaurant serves a 40-year-old adult a house drink special for $5 but charges a 21-year-old adult $9 for the same drink. What pricing tactic is being used by this manager?
Answer: A
Price discrimination is being used by the manager.
The manager is employing price discrimination by charging different prices for the same drink based on the age of the customers. This tactic allows the restaurant to maximize profits by adjusting prices according to what different customer segments are willing to pay.
A) Price discrimination
This option is correct because it accurately describes the practice of charging different prices to different customers for the same product based on specific characteristics—in this case, age. The manager charges a lower price to a customer who is likely perceived as more price-sensitive (the 40-year-old) and a higher price to a younger customer (the 21-year-old), which is a classic example of price discrimination.
B) Price fixing
Price fixing is incorrect as it refers to an agreement between businesses to set prices at a certain level, eliminating competition. In this scenario, there is no indication of collusion or agreement among various sellers to establish uniform pricing, thus making this option irrelevant.
C) Bait and switch
This option is also incorrect. Bait and switch involves advertising a low-priced item to attract customers, only to pressure them into purchasing a more expensive item. The scenario presented does not involve misleading advertising or changing the terms of the sale, so this tactic does not apply.
D) Predatory pricing
Predatory pricing is not applicable in this context as it refers to the strategy of setting prices extremely low to drive competitors out of the market. The manager's pricing strategy does not aim to undermine competition; rather, it differentiates prices among customers based on age, making this option incorrect.
Conclusion
Price discrimination is the most accurate description of the pricing strategy used by the manager, as it highlights the differential pricing based on customer age. All other options fail to align with the described situation, reinforcing that the manager's approach is rooted in the economic principle of discerning how different customer segments respond to price variations.