Question

Which of the following are necessary conditions for successful price discrimination?

Answer 1

Answer:

d. at least two different markets with different price elasticities of demand

Explanation:

The theory of microeconomics about price differentiation is based on the concept of elasticity of demand. Price elasticity of demand is a measure of the sensitivity of demand for a good or service to changes in the price of that product. We say that the price elasticity of demand is elastic when a percentage change in the price of this good has major impacts on demand. On the contrary, we say that the price elasticity of demand is inelastic when variations in the price of goods have little or no influence on demand.

For price discrimination to take place, the offeror must be able to sell the same product at different prices to at least two different groups. This will depend on the price elasticity of consumer demand for the good in each of the markets. Thus, if one group is less elastic than the other, the offeror will be able to sell the goods at different prices.

An example: air market. Consumers are often more price sensitive when traveling for tourism than for business. Thus, a higher price may be charged to executives. which has lower price elasticity of demand than tourists.