Elasticity of Demand and Price Discrimination

Elasticity of demand refers to the responsiveness of quantity demanded to changes in price. If the demand is elastic, a small change in price will result in a large change in quantity demanded. On the other hand, if the demand is inelastic, a change in price will result in a small change in quantity demanded.

Price discrimination is the practice of charging different prices to different customers for the same product or service. To be successful, price discrimination must be based on differences in the elasticity of demand between two markets.

Different Elasticity of Demand

The correct answer is option 'B', different. For price discrimination to be successful, the elasticity of demand for the commodity in the two markets should be different. This means that the price elasticity of demand in one market should be relatively high, while in the other market, it should be relatively low.

Why is this the case?

If the elasticity of demand is the same in both markets, then charging different prices will not result in any significant increase in revenue. This is because the increase in revenue from the market with the lower elasticity of demand will be offset by the decrease in revenue from the market with the higher elasticity of demand.

On the other hand, if the elasticity of demand is different in the two markets, then charging different prices will result in a significant increase in revenue. This is because the increase in revenue from the market with the lower elasticity of demand will be greater than the decrease in revenue from the market with the higher elasticity of demand.

Conclusion

In summary, price discrimination is an effective strategy for increasing revenue, but it must be based on differences in the elasticity of demand between two markets. If the elasticity of demand is the same in both markets, then price discrimination will not result in any significant increase in revenue.

It will be profitable then only when Ed is different in two markets. If it same
then it is of no use