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Economics

1. What would happen if prices were lowered when demand was inelastic is that this would make the product elastic and the demand would increase for it. A real-world example is that of computer. If it is at $399, but if it becomes higher than $899, people may stop buying it. Furthermore, if prices were raised, then the demand would become inelastic. For example, a person may buy a flat screen television for $800, but if it is at $1,500, people are not going to buy it at that point.

How would total revenue be affected?

2. Proportion of income is another straightforward determinant of the price elasticity of demand. For example, audio CD's would account for a relatively small proportion of most consumers' incomes. In contrast, so-called "big ticket" items, such as automobiles and appliances, account for a relatively large portion of most consumers' incomes.

What questions or comments do you have on the determinant of the price elasticity of demand referred to as proportion of income? Do the goods/services produced at your workplace account for a relatively small or a relatively large portion of most consumers' incomes? How would the proportion of income accounted for by the price of a good/service affect the price elasticity of demand for that good/service

Solution Preview

1. What would happen if prices were lowered when demand was inelastic is that this would make the product elastic and the demand would increase for it. A real-world example is that of computer. If it is at $399, but if it becomes higher than $899, people may stop buying it. Furthermore, if prices were raised, then the demand would become inelastic. For example, a person may buy a flat screen television for $800, but if it is at $1,500, people are not going to buy it at that point.

How would total revenue be affected?

Total revenue is affected by means of the company losing profit because of the demand ...

Solution Summary

This solution discussed economics.

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