Question

how do I figure this? please give examples with explanation. I am at a loss

Danny hired Suzy as a consultant. she reports the following:

should price increase, decrease or stay the samem

Product: chili, price elasticity-5.
product: soft drink, price elasticity 1
product: beef stew, price elasticity -0.25
product: salad, price elasticity -.036
product: brownie, price elasticity-5.1
product: fried chicken, -0.2

Answer 1

Price elasticity of demand is the responsiveness of quantity demanded to change in price. PED is elastic if it >1, unitary elastic if PED=1, and inelastic if PED <1.

Sign of PED does not matter. It is an absolute value.

Product: chili, price elasticity-5. Product is price elastic as PED >1. If product is demand elastic, and price is lowered, revenue increases. Price can be lowered.

Product: soft drink, price elasticity 1. Demand is unit elastic. For one percent change in price, there would be a 1% change in quantity demanded. Price rises or is lowered and demand is unit elastic, total revenue remains the same.

Product: beef stew, price elasticity -0.25. Product is price inelastic as PED <1. If demand is inelastic, and price is increased revenue is increased. Price can be increased.

Product: salad, price elasticity -.036. Product is price inelastic as PED <1. If demand is inelastic, and price is increased revenue is increased. Price can be increased.

Product: brownie, price elasticity-5.1: If product is demand elastic, and price is lowered, revenue increases. Price can be lowered.

Product: fried chicken, -0.2. Product is price inelastic as PED <1. If demand is inelastic, and price is increased revenue is increased. Price can be increased.