price discrimnation and taxes Flashcards
What is Price Discrimination used for by businesses and how can they apply this price discrimination in relation to price elasticity to a product?
Different consumer groups have different price elasticity of demand for the same products. Businesses can use this information to charge different prices and increase their total revenue.
What is the definition of Price Discrimination?
Price discrimination is a practice when businesses charge different prices for different demographics, situations, or times for the same product depending on their elasticity to price changes.
Why should businesses understand price elasticity of demand when practicing price discrimination?
To increase Total Revenue (TR)
Three features of a tax
Increases the price paid by consumers
Decreases the quantity sold
Generates tax revenue for the government
What is a tax
mandatory payments collected from individuals and corporations by government entity to fund government activity
increase government revenue and allow government to spend on collective wants for the people
Example of a tax?
GST - 10% Australia
What is an excise tax
These are “extra” taxes levied on specific goods such as petrol, alcohol, Tabaco. Excise taxes achieved at higher rate than GST and are directed at goods with very inelastic demand
Explain the price elasticity of demand (change in quantity demanded) in response to a price change for male and female haircuts and how a haircut business can increase total revenue for each demographic using this info.
e.g. Haircuts are more elastic for boys affecting the price as when price drops, there is a large increase in quantity demanded leading to a higher total revenue.
Haircuts for females are the opposite in terms of price and quantity and Total Revenue
What is gst
Goods and services tax (GST) is a broad-based tax of 10% on most goods
what is tax incidence
who bears the relative burden of new or existing tax that is levied
what type of good creates more tax revenue
tax revenue will be greater for inelastic goods
why does the government tax inelastic good
government imposes greater tax on these goods because they impose significant health and environmental costs but in reality the addiction for goods such as cigarette force individuals to continuously buy them
