What can you tell about the price elasticity of demand in each of the cases below?...

What can you tell about the price elasticity of demand in each of the cases below?

a. (0.5 points) The new cannabis business is very competitive. One seller states they would lose a quarter of their customers if they raised price by only 5%.

b. (0.5 points) John has a very strict routine. He purchases exactly one coffee every morning, no matter what.
c. (0.5 points) Laura runs a salon and has seen her revenues increase after she raised the price per haircut by $10.

Expert Solution

a. Rise in price sometimes affects reduction in customer. This is because in this new cannabis business is very competitive business, customer can occupy same product from many companies. If price get increase, then customer can choose same product from other company where he get cheaper. In this scenerio Price elasticity of demand can decrease due to increase in price. b. Routine John daily purchase one coffee every day. John doesn't consider what's the price of coffee he consumes and what is the change in price day by day. In this scenario price elasticity of demand increase. c.in this scenario ,customer of Laura doesn't decrease because of her quality of service, that's why price elasticity of demand increase.

Rahul Sunny answered 2 years ago

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