The price elasticity of demand for restaurant meals is 1.5 for type A consumers and 0.9 for type B consumers. If a resturabt decides to price discriminate, which group will be charged a higher price? Explain your answer

Answer 1

The group that will be charged a higher price is Type A consumers.

This can be explained by the concept of price elasticity of demand. Price elasticity of demand measures how sensitive the quantity demanded is to a change in price. A higher price elasticity means that demand is more sensitive to price changes.

In this case, Type A consumers have a price elasticity of demand of 1.5, which is higher than the price elasticity of Type B consumers (0.9). This means that Type A consumers are more responsive to price changes than Type B consumers.

When a restaurant engages in price discrimination, it aims to extract higher prices from consumers who are less sensitive to price changes and charge lower prices to consumers who are more price-sensitive. This strategy allows the restaurant to capture more consumer surplus and maximize its profits.

Therefore, since Type A consumers are more responsive to price changes (have a higher price elasticity), the restaurant would charge them a higher price compared to Type B consumers, who are less sensitive to price changes (have a lower price elasticity).