A Recent Study Has Concluded That Working Adults Have a Price

question 87

Multiple Choice

A recent study has concluded that working adults have a price elasticity of demand of 1.72 for train services, while pensioners have a price elasticity of demand of 3.74. If price discrimination is possible, then the company providing the train service will:

• A) charge a lower price to working adults than to pensioners.
• B) charge a lower price to pensioners than to working adults.
• C) earn higher profits by charging everyone the same price.
• D) lower prices for all customers because demand is elastic for both groups.

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Definitions:

Cost of Equity

A theoretical payment made by a corporation to its stockholders to reward them for the risk involved in investing their funds.

Dividends

Money that a corporation gives to its members of shareholding, often coming from the profits of the company.

Beta

A measure of a stock's volatility in relation to the overall market; a higher beta indicates greater volatility and risk.

Preferred Shares

A type of stock that provides a fixed dividend before any dividends are paid to common stockholders and typically has no voting rights.