Question

Suppose the price elasticity of demand for coffee at the Coffee Barn equals 1.71 for women and 0.55 for men. A successful price discrimination strategy would lead to _____ prices for men and _____ prices for women _____.

Answer 1

Answer:

The correct answer is: higher; lower.

Explanation:

The price elasticity of demand for coffee for women is 1.71.  

The price elasticity of demand for coffee for men is 0.55.  

For the price discrimination strategy will work if a higher price is charged from people with more inelastic demand.  

When the demand is inelastic an increase in the price will cause the quantity demanded to decrease by less than proportionate. This will cause revenues to increase.  

For elastic demand, the increase in price will cause the quantity demanded to decrease by more than proportionate. This will cause revenues to decrease.  

So a price discrimination strategy for coffee will work if a higher price is charged from men and lower prices for women.