Chapter4

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

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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

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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:
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%

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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 .
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.

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