Question

1. The price elasticity of demand for iphone 6 is 1.2. Apple wants to increase its total revenue. Would you recommend that Apple raise or lower the price of iphone 6? Explain your answer.

2. The demand of gasoline is more inelastic in the short run than in the long run. Why? Give examples that illustrate why the demand of gasoline in the long run is not inelastic.

3. Choose one of the products or services that your company provides, identify the type of demand that it has (elastic, inelastic, unit elastic) and argue how demand behaves with respect to price changes.

4. What is the elasticity of supply of one of the goods or services that your company provides? Why? How does your answer relate with another student answer?

Answer 1

Answer : According to the elaticity of demand theory, if elasticity of demand (e) is greater than 1, i.e., if e > 1 for a good then the demand for that good is elastic. From the given information in the question we get that e = 1.2 for iPhone 6. This means the demand for iPhone 6 is elastic because here elasticity of demand (e) >1. In this situation if price rise then demand fall but if price fall then demand increase. Hence I will recommend the Apple company to low the price level of iPhone 6. Because if price fall then demand for iPhone 6 increase which increase the total revenue to company. Although the company face some losses for reducing the price level but this loss is lower than the total revenue which is earned by the reduced price level. Thus the company can increase the total revenue by lower price level.