A firm switching from a single price to a price discrimination scheme will ________ the price for the group of consumers with a relatively elastic demand and ________ the price for the group of consumers with a relatively inelastic demand.
A) decrease; increase
B) decrease; decrease
C) increase; increase
D) increase; decrease

Question

Quizplus · Accepted Answer

When a firm switches from a single price scheme to price discrimination, it charges different prices to different groups of consumers based on their willingness to pay. Consumers with relatively elastic demand have many substitutes and are more sensitive to changes in price, so the firm will lower the price for this group to attract more sales. On the other hand, consumers with relatively inelastic demand have fewer substitutes and are less sensitive to changes in price, so the firm can charge a higher price to this group and still maintain sales.

A Firm Switching from a Single Price to a Price