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Many universities allocate financial aid to undergraduate students on the basis of some measure of need. Does this practice reflect charity or price discrimination? If it reflects price discrimination, do you think it lies closer to first-degree discrimination or third- degree discrimination?

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  • $\begingroup$ Economists typically justify subsidized higher education by noting the positive externality it generates. Without such subsidy, people will under-consume education, leading to inefficiency. $\endgroup$ – Herr K. Dec 8 '19 at 18:57
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Scholarships certainly count as price discrimination. Charging different prices to different groups of consumers for the same good is third degree price discrimination, which is what occurs with school sponsored scholarships. First degree price discrimination occurs when a firm charges a different price for every unit consumed, and while theoretically possible for a school to do, is not done in practice and would require a much more complex pricing scheme than that offered by scholarships in the usual sense of the word.

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