Question

Discussion 4:

Price Elasticity of Demand

Think of three goods for which the demand is inelastic with respect to price. Do these goods ever go on sale? Does understanding the relationship between elasticity and total revenue help you understand why some goods go on sale and others don’t? Share your thoughts.

Answer 1

Three goods are gasoline, medical services, tobacco.

No, these goods never go to sale as the demand is inelastic i.e. no matter what the price the demand for the good will remain more or less the same. People's demand will not change. Sale is for those goods where the demand are elastic i.e. a decrease in the price will influence the consumer to buy those goods and increase its demand.

for the elastic good a decrease in the price will increase the revenue and for the inelastic good an increase in the price will increase the revenue.