Question

state two other familiar cases in which price discrimination exists. Does price elasticity of demand make the practice effective? How?

Typed please

Answer 1

Price discrimination is when firms charge different prices for the same good to different consumers. Two examples of price discrimination are:

1. Different prices are charged for consumers based on the quantity of electricity they consume. The first 100 units are charged a different price when compared to units above the 100 units. The first 100 units are priced more because the demand for those is inelastic but anything above that consumers might reduce demand, so the prices reduce.

2. Entry charges- Indian citizens are charged lesser when compared to individuals from other countries when as entry charges to visit monuments in the country. This is because those who are coming from other countries would definitely want to see the monuments and therefore have an inelastic demand, which is why they are charged more.

Price elasticity becomes an essential component which is necessary if the sellers want to practice price discrimination. Price discrimination is effective when the sellers can identify the price elasticity of demand of the consumers. This will help them charge more from those who have an inelastic demand than from those who have elastic demand.