Question

Question 1

I often hear people say that if they owned a business, they would lower prices to increase sales and thus become more profitable. Please use the elasticity analysis to explain why this response is not correct. In addition, please provide an example from your experiences where any of the elasticity concepts learned from this chapter will help explain the event you observed. Of course you need to explain why the elasticity concept(s) relates to the event you mention.

Question 2

Be sure to explain why a particular person you know has stopped consuming a particular product. Be sure to use terms listed in chapter 6. Also, be sure to explain why you or your family visit a particular fun spot instead of another spot that you visit less often. Be sure to use terminology from the chapter in your explanation. I am really looking forward to learning about fun things to do where you are from or visit. Please keep your discussion G or PG rated.

Answer 1

Question 1:

Elasticity refers to the degree of responsiveness of demand to changes in price.

The logic often given by people that they would reduce prices to increase sales rests on their assumption that the demand for their product is elastic, i.e., for a drop in price, demand would be very reactive and thus it would rise. However, this logic falls apart if the good in question is an inelastic good. For instance, if the individual is selling pencils, no matter how much he/she would decrease prices, the demand wouldn't rise beyond a point. Because the good which is a necessity for students is an inelastic good.

In recent years, souvenir shops in my locality have held 'clearance sales' where the prices have been dropped by half. Although the prices were almost cut by half, the sales did not rise by the same amount. Why? Because the demand for souvenirs is not elastic. Nobody would stock up on souvenirs such as snow globes just because their prices are cut in half.

Thus, the demand for souvenirs is inelastic. And so a decline in prices does not force the demand to react by the same magnitude.