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Learn about the elasticity of demand for ABC Detergent as the price changes, different types of price elasticity, and methods to calculate elasticity and increase total revenue by pricing based on demand.
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Economics Presentation
The Elasticity of Demand ABC Detergent
A DEMAND SCHEDULE FOR ABC DETERGENT PRICE/UNIT ($) QUANTITY 10 1000 20 700 500 30 250 40
The Method to find out the elasticity of demand for ABC detergent if the price increases from $20 to $30: 1/. The original price method (500-700) / (30-20) X 20/700 Ed = -|0.57| (Corr. 2 s.f) 2/. The average price and quantity method (500-700) (30+20) / 2 ------------ X ----------------- (30-20) (500+700) /2 Ed = -|0.83|(Corr. 2 s.f)
Since Ed< 1, therefore the elasticity of demand for ABC detergent is INELASTIC. DIFFERENT TYPES OF PRICE ELASTICITY: Elastic : Ed > 1 Inelastic : Ed < 1 Unitarily elastic : Ed = 1 Perfectly inelastic : Ed = 0 Perfectly elastic: Ed = infinitive
How to increase total revenue for ABC Detergent?? Price $ • Inelastic demand • If price increase, • =>% Increase in price > % decrease in Qd • Gain > Loss • Total Revenue increase P2 P1 GAIN LOSS Qd/period