A. Attention getter
B. Introduce topic
II. Price elasticity of demand
III. Price discrimination
A. Who/how benefits
B. Closing attention getter
Price Elasticity of Demand and Price Discrimination
Buy one get one half off and 10% off are just two of the more common offers I come across as a student. They may not seem like much, but for some people saving just one dollar can mean the difference between making the purchase and not. It is fairly common knowledge that college students and the elderly tend to live on a tight budget as compared with middle aged adults, and more often than not, discounts like these are aimed and sometimes exclusively offered to students and the elderly. You may ask why a business would offer a discounts like these to such a large demographic, or how this can be profitable. Price elasticity of demand and price discrimination together are two economic concepts that can answer these questions.
Price elasticity of demand measures how responsive the quantity of a product is demanded to a change in price. Price elasticity of demand equals the change in quantity demanded divided by the percentage change in price. Businesses use this concept to measure how responsive consumers are to a change in price and how that will effect profit. For example, if you are sell 20 ice cream cones for $1, and your profit on each is 50 cents, then total profit is $10, but if you lower the price to 75 cents, then demand increases and you sell 45 cones at this price your profit goes up to $12.50. When you use this concept to charge different groups of consumer’s different prices for the same product to increase profit is price discrimination. Knowing the tight budgets of some groups like students and senior citizens, businesses can target these groups with discounts in order to increase demand and profits. One example of price...
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