Asked by Savannah Pulliam on Jun 24, 2024
Verified
Children's price elasticity of demand for hot chocolate is 0.5.Adults' price elasticity of demand for hot chocolate is 1.5.If the concession stand selling the hot chocolate wants to practice price discrimination,it should charge higher prices to adults.
Price Elasticity Of Demand
A measure of how much the quantity demanded of a good responds to a change in price.
Price Discrimination
The strategy of selling the same product or service at different prices to different customers, based on their willingness to pay.
- Comprehend the principle of price differentiation and the circumstances that lead to its implementation.
Verified Answer
NH
Nancy HanzranKkJun 25, 2024
Final Answer :
False
Explanation :
Price elasticity of demand measures how sensitive the quantity demanded of a good is to its price change. A lower elasticity (0.5 for children) means demand is less sensitive to price changes, so higher prices can be charged without significantly reducing quantity demanded. Conversely, a higher elasticity (1.5 for adults) indicates demand is more sensitive to price changes, suggesting lower prices might be necessary to maintain demand. Therefore, to maximize revenue through price discrimination, the concession stand should charge higher prices to children, not adults.
Learning Objectives
- Comprehend the principle of price differentiation and the circumstances that lead to its implementation.