Price discrimination is related to elasticity because
A) the firm can increase revenues by charging customers with elastic demands higher prices and charging customers with inelastic demands lower prices.
B) the firm can increase revenues by charging customers with elastic demands lower prices and charging customers with inelastic demands higher prices.
C) the firm can increase revenues by charging all customers higher prices.
D) None of the above; elasticity and price discrimination are unrelated.

Question

Quizplus · Accepted Answer

Price discrimination is the practice of charging different prices to different customers for the same goods or services. Elasticity refers to the sensitivity of demand to changes in price. If a customer has an elastic demand, they will be more likely to switch to a substitute product if the price of the original product increases. On the other hand, customers with inelastic demands are less likely to switch to a substitute product if the price of the original product increases. Therefore, a firm can increase revenues by charging customers with elastic demands lower prices and charging customers with inelastic demands higher prices.

Price Discrimination Is Related to Elasticity Because