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    Equity and price discrimination

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    Please help me so I can complete the following:

    Please write your response in an essay format. The two essays must be well structured and with a quality that is commensurate with graduate level writing standards.

    1. Price discrimination is often defended on the basis of equity. What is meant by this statement? Comment on its validity.

    2. Because credit card companies and banks must charge the same interest rate on credit cards to all borrowers, there is an adverse selection problem with credits card. How does a credit card company or firm know whether a person will be a high-quality borrower (i.e., one who pays the debts) or a low-quality borrower (i.e. one who does not pay debts)? Describe
    a. how the restriction of a single rate leads to an adverse selection problem, and
    b. at least two potential means that credit card companies can use to try to lessen this problem.

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    Solution Preview

    Price discrimination can be a means of distribution benefits more equitably. For example, in higher education those with less means are often given lower tuition rates. This enables people whose families are disadvantaged to better themselves. Obviously, our society would be far less just if only the rich could afford higher education.

    Adverse ...