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Unformatted text preview: Basic Marketing – Chapter 6 Handout 61 Chapter 4 Chapter 4 Elasticity Elasticity You design websites for local businesses. You charge $200 per website, and currently sell 20 websites per month. Your costs are rising (including the opp. cost of your time), so you ’ re thinking of raising the price to $5%. The law of demand says that you won ’ t sell as many websites if you raise your price. How many fewer websites? How much will your revenue fall, or might it increase? You design websites for local businesses. You charge $200 per website, and currently sell 20 websites per month. Your costs are rising (including the opp. cost of your time), so you ’ re thinking of raising the price to $5%. The law of demand says that you won ’ t sell as many websites if you raise your price. How many fewer websites? How much will your revenue fall, or might it increase? A scenario A scenario … Basic Marketing – Chapter 6 Handout 62 • Price Elasticity of Demand ( ε): Percentage change in quantity demanded from 1% change in price. • ε measures the sensitivity of buyers ’ demand to price. Price Elasticity of Demand Price Elasticity of Demand D P Q Calculating Elasticity Calculating Elasticity P Q D $250 8 B $200 12 A Demand for your websites Standard method of computing the percentage (%) change: end value – start value start value x 100% Going from A to B: Basic Marketing – Chapter 6 Handout 63 Calculating Elasticity Calculating Elasticity P Q D $250 8 B $200 12 A Demand for your websites Problem : The standard method gives different answers depending on where you start. Going from B to A: Calculating Elasticity Calculating Elasticity • Use the midpoint method : end value – start value x 100% Basic Marketing – Chapter 6 Handout 64 Price Elasticity of Demand 3 2 1 Determinants of Price Elasticity of Demand Determinants of Price Elasticity of Demand • Example 1: Rice Krispies vs. SunscreenExample 1: Rice Krispies vs....
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This note was uploaded on 12/07/2009 for the course ECON ECON 1 taught by Professor Foster during the Fall '08 term at UCSD.
 Fall '08
 Foster
 Microeconomics

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