Different rates of electricity bill for farmers, households and business houses are related to :

Question

Accepted Answer

The correct option is 3:

Price discrimination is a microeconomic pricing strategy where a seller charges different prices to different consumers for the same product or service, even though the cost of supplying them remains the same or similar. In the context of electricity, the supplier (often a monopoly or regulated utility) divides the total market into distinct groups—such as farmers (agricultural sector), households (domestic consumers), and business houses (commercial/industrial sector)—and charges them different tariff rates. This practice is possible because the electricity supplier has market power, the market segments are distinct (meaning farmers cannot resell low-priced electricity to businesses), and each segment has a different price elasticity of demand. For instance, agricultural users may receive subsidized rates due to government policy, while commercial users, whose demand is often more inelastic, are charged higher rates to maximize overall revenue.

The incorrect option is 1:
Perfect competition is a market structure characterized by many buyers and sellers, homogeneous products, and perfect information, where no single firm can influence the price. Under perfect competition, price discrimination is impossible because consumers would simply buy from a seller offering the lowest price, forcing all firms to charge a single market price.

The incorrect option is 2:
Dumping is an international trade practice where a country or company exports a product at a price lower than its domestic price, or below its cost of production. It is a concept related to international trade and monopolies across borders, not the differential pricing of a utility service to domestic consumer groups.

The incorrect option is 4:
The Kinked demand curve is a model used in Oligopoly to explain price rigidity. It suggests that competing firms will match price cuts but ignore price increases, resulting in a 'kink' in the demand curve faced by the firm. This concept relates to strategic interaction between a few firms and does not explain differential pricing based on consumer type.