How does the concept of price elasticity relate to a firm's ability to screen consumers effectively in the presence of information asymmetry?

Price elasticity refers to how sensitive consumers are to changes in price. When a firm understands price elasticity, it can determine how much to raise or lower prices without losing too many customers. In situations where there is information asymmetry, meaning one party knows more than the other, firms can use price elasticity to identify different consumer groups. For example, if a firm knows that some consumers are very price-sensitive (elastic demand), they might offer discounts to attract them, while charging higher prices to less sensitive consumers. This approach allows the firm to maximize profits by effectively screening different types of consumers based on their willingness to pay.