Price discrimnation and gov tax Flashcards
What is price discrimination?
Price discrimination is the practice of charging different prices to different consumer groups based on their price elasticity of demand to increase total revenue.
Why might businesses use price discrimination?
Businesses use price discrimination to take advantage of different price elasticities among consumer groups to maximize total revenue.
Why are female haircuts considered more inelastic in demand?
Female haircuts are more inelastic, meaning that an increase in price leads to only a small decrease in quantity sold, so raising prices can increase total revenue.
Why are male haircuts considered more elastic in demand?
Male haircuts are more elastic because a reduction in price leads to a significant increase in quantity sold, so lowering prices can increase total revenue.
How should a business adjust prices for elastic products to increase total revenue?
For elastic products, the business should decrease prices to boost quantity sold, thereby increasing total revenue.
What are excise taxes?
Excise taxes are additional taxes imposed on specific goods, such as petrol, alcohol, and tobacco, often due to their inelastic demand.
How does a tax affect supply and demand in a market?
ax shifts the supply curve leftward, increasing the price paid by consumers, decreasing the price received by producers, and reducing the quantity sold.
Why do governments place taxes on inelastic goods like petrol, alcohol, and cigarettes?
Because inelastic goods experience minimal reduction in quantity sold after a tax, allowing for effective revenue generation without significant declines in production or employment.
How do taxes generate revenue for the government?
Taxes generate revenue by imposing an additional cost on goods, especially those with inelastic demand, leading to sustained purchasing even with higher prices.
