Question

b. Explain how a firm can establish the price elasticity of demand for the products it sells in practice. Give an example of how a firm might do this in practice.

Answer 1

The price elasticity of demand measures relative responsiveness in change in quantity demanded du due ti change in price of that good.Company ir firm uses this concept to make profits and implement price startetgy to gian the opprtunity. We can take an example of UBER,a ride hailing company.It exists as a fantastic real-life case study of both price elasticity in action and how behavioral factors often influence expected output.Surge pricing feature is one that uses vast troves of data on supply (of drivers) and demand (by riders) to regulate prices in real time and maintain equilibrium moment to moment.Uber, given the sheer volume of real-time data it has available to it, is able to continuously triangulate its price elasticity quotient and use that information to regulate demand, moment-to-moment, which it does by pricing out different cohorts of customers who exist along its price sensitivity spectrum.when we apply figures to theory, this implies a price elasticity quotient of 1.35, assuming a reasonably consistent baseline fare within the geographic bounds of the case, and a conclusion that Uber’s customers are relatively price elastic.