Thursday, 19 March 2015

How is price discrimination related to elasticity of demand?



Price discrimination implies charging different price levels to different groups of consumers for the same product, whereas price elasticity expresses the willingness and ability to pay or responsiveness of quantity to changes in price level; such that as elasticity increases consumers are willing to pay less for more units.
Therefore, a lower price is charged to a group with more elastic demand and a higher price to a group with less elastic demand.
when price is discriminated to high, then the demand for the particular product goes down and consumers try to divert their consumption on goods whose prices are low as compared to the later.

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