Question

In: Economics

The own price elasticity of demand for Good Y is -1.75. Management reduces the price of...

The own price elasticity of demand for Good Y is -1.75. Management reduces the price of Good Y by 5% to stimulate demand.

As a result of this "pricing strategy,"

Solutions

Expert Solution

Price Elasticity of demand measures the degree of responsiveness of the quantity demanded of a commodity to a change in it's price. It is calculated as-

Price Elasticity of demand= % change in quantity demanded / % change in price

Given that own price Elasticity of demand for good Y is -1.75. management reduces the price of good Y by 5% . So, % change in price= -5% ( negative sign indicates a decrease)

Substituting the given values-

-1.75= % change in quantity demanded / (-5%)

Cross multiplying-

% change in quantity demanded= -1.75 x -5%

% change in quantity demanded= 8.75%

hence, a positive 8.75% change in quantity demanded shows that quantity demanded has increased. Hence, as a result of this pricing strategy, QUANTITY DEMANDED OF GOOD Y WILL INCREASE BY 8.75% . As percentage increase in quantity demanded is more than percentage decrease in price, TOTAL REVENUE for good Y will INCREASE.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

A cross price elasticity of demand of -1.5 for Good X and Good Y suggests that...
A cross price elasticity of demand of -1.5 for Good X and Good Y suggests that if the price of of Good X increases by 5.0 percent, then the quantity demanded of Good Y will? A) increases by 7.5 percent and the goods are complements B) decreases by 7.5 percent and the goods are complements C) decreases by 7.5 percent and the goods as substitutes D) increases by 7.5 percent and the goods are substitutes
Suppose the own price elasticity of demand for good X is -5, its income elasticity is...
Suppose the own price elasticity of demand for good X is -5, its income elasticity is 2, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is 3. Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. Include a minus (-) sign for all negative answers. a. The price of good X decreases by 5 percent. percent b. The price of good Y increases by...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is -1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -3. Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. Include a minus (-) sign for all negative answers. a. The price of good X decreases by 4 percent. percent b. The price of good Y increases by...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is -1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -3. Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. Include a minus (-) sign for all negative answers. a. The price of good X decreases by 4 percent. _______percent b. The price of good Y increases by...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is 3, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is -6. Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. Include a minus (-) sign for all negative answers. a. The price of good X decreases by 5 percent. ______ percent b. The price of good Y increases...
Suppose the own price elasticity of demand for good X is −0.25, and the quantity of...
Suppose the own price elasticity of demand for good X is −0.25, and the quantity of good X increases by 5 percent. What would you expect to happen to the total expenditures on good X? Please explain and show any calculations.
2. Suppose the own price elasticity of demand for good X is 2, its income elasticity...
2. Suppose the own price elasticity of demand for good X is 2, its income elasticity is 3, and the cross price elasticity of demand between it and good Y is 6. Determine how consumption demand for the good will change if: a) The price of good X increases by 5 percent. b) Consumer income falls by 3 percent. c) The price of good Y increases by 10 percent. d) Is good Y a substitute or a complement? _________________________________________________ _________________________________________________...
If the cross-price elasticity of demand between Good A and Good B is 3, the price...
If the cross-price elasticity of demand between Good A and Good B is 3, the price of Good B increases, and the price elasticity of demand for Good B is inelastic, we can expect to see a(n) ________ change in the quantity demanded for Good A. large infinite zero small one-for-one
a. Define the demand function of a good, and then discuss the price elasticity of demand...
a. Define the demand function of a good, and then discuss the price elasticity of demand for agricultural product such as rice. b. Use a demand/supply diagram to discuss why rice farmers may not benefit from a technological improvement in producing rice.
a. Define the demand function of a good, and then discuss the price elasticity of demand...
a. Define the demand function of a good, and then discuss the price elasticity of demand for agricultural product such as rice. b. Use a demand/supply diagram to discuss why rice farmers may not benefit from a technological improvement in producing rice.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT