Uno,
Yes, discrimination is applied on almost all circuits, regardless of their purpose. It has to be, otherwise a fault on a small circuit would trip everything back to the utility transformer, if not back to the generating plant. This is achieved by discrimination on either a time or current basis on most LV systems. In addition to discrimation techniques, more specialised protection schemes are found on MV and HV systems and heavy-current LV systems, by restricting the zone over which the protection operates, or by making the protection sensitive to power flow in a certain direction, and so on. That is probably getting a bit too complex for this discussion, but protection is a fascinating field.
The use of cable impedance or transformer impedance to limit fault levels is standard practice. Fault level limitation by cable impedance is usually a fortunate result of using real-world cable sizes to supply real-world loads, where cable size is usually based on current-carrying capacity. Occasionally it is necessary to increase a cable to a larger size to withstand fault current, but while this is a prudent check for any design, the situation doesn't arise that often.
Transformers are deliberately designed with an impedance which restricts the prospective fault to a level which switchgear is cable of clearing. It is possible to design transformers with very low impedance, but switchgear becomes difficult to obtain or has to be designed for the application. In most situations the degradation in transformer regulation from no-load to full-load caused by increasing the transformer impedance slightly is of little or no consequence, while the benefits of limiting the fault level are apparent in reduction of conductor and switchgear size and cost.
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