Question

You own your own business, and your research indicates that the price elasticity of demand for your product is 3.5. What pricing stratigies should you follow and why?

Answer 1

Answer.) Price elasticity is the percentage change in quantity demanded divided by the percentage change in price. The absolute value of the elasticity number is important in analysing product demand, if the number is greater than 1.0 the demand is seem to be elastic; 3.5 price elasticity means that demand is highly elastic. In this framework, Optimal strategy would be is to reduce the price. If the price falls by 10 percent, for example, the increase in quantity demanded will be larger than that percentage move and will increase total revenue. Demand is very elastic when consumers have many substitute goods, so raising price in this case will reduce total revenues.