Chapter4 - Chapter 4 Elasticity A scenario scenario You You...

Info icon This preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Basic Marketing – Chapter 6 Handout 6-1 Chapter 4 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? A scenario
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Basic Marketing – Chapter 6 Handout 6-2 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 D P Q 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:
Image of page 2
Basic Marketing – Chapter 6 Handout 6-3 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 Use the midpoint method : end value – start value x 100%
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Basic Marketing – Chapter 6 Handout 6-4 Price Elasticity of Demand 3 2 1 0 Determinants of Price Elasticity of Demand Example 1: Rice Krispies vs. Sunscreen The prices of both goods rise by 10%. For which good does Q d drop the most? Why? • Lesson: Price elasticity is ___________ when close substitutes are available .
Image of page 4
Basic Marketing – Chapter 6 Handout 6-5 Determinants of Price Elasticity of Demand Example 2: Blue Jeans vs. Clothing The prices of both goods rise by 10%. For which good does Q d drop the most? Why? • Lesson: Price elasticity is ___________ for narrowly defined goods than broadly defined ones.
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern