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Amber small speciality retail store that specializes in the sale of organically based hair care products....

Amber small speciality retail store that specializes in the sale of organically based hair care products. In the last three months the store has experienced a decline in sales and in an attempt to offset any further decline Amber has decided to lower the prices of her products. A month after lowering the price of her products Amber has noticed that sales have not increased and that there has been no discernible changes in the demand of her products. In economic terms this situation would be illustrative of (a):

a) Market equilibrium

b) Inelastic demand

c) Negative slope

d) Price elasticity

Business   Economics   
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Answer #1

In the last three months Amber has experienced a decline in the sales and to prevent further decline in sales she had decided to lower the price of her products. But in spite of decrease in price the sales has not changed neither there is any discernible change in the demand for her products.

In economic terms, this situation can be called as Inelastic Demand.

The demand for a good or service is called inelastic when there is no change in demand due to a change in price of good or service. In other words if there is no effect of change in price on the demand of the product. In this situation Amber lowered her price, but there was no effect seen on the demand of her products, so this illustrates inelastic demand.

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