Based only on the concept of demand elasticity: When would you recommend raising the price of...

Based only on the concept of demand elasticity:

When would you recommend raising the price of the good? Explain why.

When would you recommend lowering the price of the good? Explain why.

When would you recommend keeping the price of the good unchanged? Explain why.

Solutions

Expert Solution

1) The price of the good can be increased when the demand is inelastic.

When the demand is inelastic,it means that the percentage change in demand is less responsiveness to the percentage change in price so a high price can be charged to generate maximum revenue when the demand is inelastic.

2) The price of the good should be decreased when the demand is elastic.

When the demand is elastic,it means that the quantity demanded would change by a large extent with the change in price so if the firm increases prices,quantity demanded would decrease and the firm would incur loss so,it is best to decrease the price when the demand is elastic.

3 ) The price of the good should remain same when the elasticity of demand is unitary

In this case the percentage change in price would cause a equal percentage change in demand so that there would be no effect on the total revenue so its better to keep the prices same.

Rahul Sunny answered 1 year ago

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