Question

Airlines can price discriminate by determining people's _______ to pay for luggage accommodations. Some customers will check a bag, others will not. Although not all customers will pay to check a bag, the airline makes more ___ because it can divide customers into ___ groups. Those who do not want to pay to check a bag have _____ demand and will pack everything in a carry-on. Customers who have _____ demand for checked luggage will pay to check their bags.

Answer 1

Answer:

Willingness to pay

Revenue

Two

Elastic

Inelastic

Explanation:

Price discrimination is when a producer or a seller charges different prices for the same product usually in different markets.

In price discrimination, a seller attempts to remove or reduce consumer surplus by charging the consumer at his willingness to pay. For price discrimination to be effective, a seller must be able to estimate the willingness to pay of consumers.

Price discrimination is successful when a seller earns higher profits when she discriminates compared to when she didn't price discriminate.

Price discrimination exists in the airline industry. One of the ways price discrimination exists in the airline industry is through charging to check bags. Customers ( people who board airplanes) are distributed into two groups- those who won't pay to check bags and those who would pay to check bags.

It is assumed that those who would pay to check their bags have a price inelastic demand because they are indifferent to paying an extra amount for their luggage.

Inelastic demand is defined as when a small change in price has no effect on quantity demanded.

While it is assumed that those who won't pay to check their bags have an elastic demand because they are unwilling to pay extra to check their luggages.

Elastic demand is when a change in price has effect on quantity demanded.