Answer to Question #91112 in Microeconomics for Rimie

Question

Walmart sells exactly same goods cheaper in the US than in Canada. “But the United States is way larger market than Canada, so the demand for (almost) everything is greater in the USA, and Walmart should be charging the American buyers more!” What is wrong with this statement? (hint: think what price discrimination scheme is in place).

Answer 1

The demand in the United States may be higher but similarly highly sensitive to price changes (higher price elasticity of demand) hence any slight increase in retail prices would cause a large slump in sales. In contrast, demand in Canada is likely to be price inelastic therefore high prices are charged to maximize profits without causing a decline in demand.