Purchase Solution

Price Elasticity in Given Situations

Not what you're looking for?

Ask Custom Question

1. Consider the following description of a pricing decision by a book publisher:

A publisher may have issued a monograph several years ago, when both costs and book prices were lower, and priced it at $14.95. The book is still selling reasonably well and would continue to do so at $19.95. Why not, then, raise the price? The only danger is miscalculation: By raising the price you may reduce sales to the point where you make less money overall, even while making more per copy.

Assume that the situation described in the last sentence happens. What does this tell us about the price elasticity of demand for that book? Briefly explain.

2. The equilibrium price of water bottles rose sharply last month, but the equilibrium quantity was the same as ever. Three people tried to explain the situation. Which explanations could be right? Explain your logic. (Draw supply and demand graphs to explain.)

MAGGIE: Demand increased, but supply was totally inelastic.
PETER: Supply increased, but so did demand.
JACK: Supply decreased, but demand was totally inelastic.

Purchase this Solution
Solution Summary

This solution answers two questions about price elasticity of demand:

1. By observing price and sales data of a book, determine whether the book's demand is price elastic or price inelastic.
2. Determine which of three possible scenarios can explain observed changes in the equilibrium price and quantity of the market for watter bottles.

Solution Preview

1. Price elasticity of demand measures the percentage change in quantity with respect to the percentage change in price. In this case, revenue (Price x Quantity) decreased when the price was raised (and quantity ...

Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Analyzing Situations with Elasticity Concepts

    582548 Analyzing Situations with Elasticity Concepts 1. Answer the following questions based on the accompanying diagram a. How much would the firm's revenue change if it lowered price from $12 to $10? Is demand elastic or inelastic in this range?

  • Sensitivity of the demand for iPods

    The price of milk decreases In order for you to know what will happen to the demand curve for ipods on the given situations you need to understand the concept of elasticity.

  • Price elasticity of demad, determinants of elasticity

    Solution to first problem predicts the effect of price increase on total revenue for given values of elasticity. Solution to second problem explains the reasons for higher elasticity of Coca-cola.

  • Demand and Supply Scenario and Elasticities

    Let us Price be and corresponding Quantity be . Given that point elasticity is -1 at this Point. i.e.

  • Price Elasticity in Real Life Situations

    The solution determines price elasticity in real life situations.

  • Comparing studies dealing with price elasticity

    In economics, the price elasticity of demand (PED) is an elasticity that measures the responsiveness of the quantity demanded of a good to its price.

  • Factors that Contribute to the Elasticity

    Given time, consumers can change their behavior and move away from goods that are expensive. So, price elasticity of demand is higher in the low run. Lastly, the scope of the market is a consideration.

  • Calculate the price elasticity of demand.

    Q=4000-500*P Given, P=$4.50 Q =4000-500*4.5=1750 Q=4000-500P Differentiating with respect to P, we get dQ/dP=-500 Price elasticity =(dQ/dP)*(P/Q)=(-500)*(4.5/1750)= -1.28571 c) Comment on the change in elasticity.

  • Price Elasticity of Demand Concepts

    p**=300 q**=4000 d) Price elasticity of demand=(dq/dp)*(p/q) We have found in part a that dq/dp=-20 Price elasticity of demand at p** and q** is given by Price elasticity of demand=(dq/dp)*(p**/q**)=-20*(300/4000)= -1.5.

View More Related Solutions