would happen if prices were lowered when demand was inelastic is that this
would make the product elastic and the demand would increase for it. A
real-world example is that of computer. If it is at $399, but if it becomes
higher than $899, people may stop buying it. Furthermore, if prices were raised,
then the demand would become inelastic. For example, a person may buy a flat
screen television for $800, but if it is at $1,500, people are not going to buy
it at that point.
How would total revenue be affected?
2. Proportion of income is another straightforward
determinant of the price elasticity of demand. For example, audio CD’s would
account for a relatively small proportion of most consumers’ incomes.
In
contrast, so-called “big ticket” items, such as automobiles and
appliances, account for a relatively large portion of most consumers’ incomes.
What questions or comments do you have on the determinant of
the price elasticity of demand referred to as proportion of income?
Do the
goods/services produced at your workplace account for a relatively small or a
relatively large portion of most consumers’ incomes?
How would the proportion
of income accounted for by the price of a good/service affect the price
elasticity of demand for that good/service.
