Price Elasticity?

Question

two scenarios.....

1)one company is forced to discount its products because customers are going to places like costco to buy cheaper goods, is this an elastic market place.

2)a companies revenue is increasing due to new products and price increases, is this inelastic or elastic?

thanks.

Answer 1

price elasticity is simple enough to understand. price elastic is when the price changes for goods and the quantity demanded changes as expected. price inelastic is when the quantity demanded essentially stays the same when price changes; consumers are not sensitive to price changes.

so, we see that:

1) elastic

2) inelastic

the reason the second one is inelastic is that total revenue equals price times quantity demanded. so, if price is increasing and total revenue is increasing, then it would make sense that quantity demanded changes by very little or does not change. it does not make sense for quantity demanded to increase obviously, but it does not decrease enough to make total revenue decrease. so, it is price inelastic