F5 Pricing - price elasticity of demand

Sstephharrop13y ago

Hello, i have been watching the lectures on pricing and noticed you didn't cover the topic of price elasticity of demand, so i had a look through the course notes to see the answer you had for example 3. However i'm abit puzzled on how you came up with the answer... for example the question is asking to calculate the price elasticity of demand if the current selling price is $16 per unit.. i'm unsure as to why we would use 15.5-16 in the equation...i can see that 15.5 is in example 2 but why would we use it in example 3, when it was established that $15 per unit was the optimal selling price...if that makes sense. Thanks Steph

John MoffatTutor13y ago#1

If you are asked to calculate the elasticity (with tables as in example 2) then you go to the next possible selling price. So, since it asks for it if the current price is $16 per unit, then you go to the next price down (which is 15.5 per unit) and then look at the percentage changes in price and in demand. Similarly, for part b, when you are asked for it if the current price is $15 per unit, you go to the next lower price which is 14.50 and do the arithmetic again.

Sstephharrop13y ago#2

Thanks for getting back to me so soon, really appreciate it.. ahh that makes more sense :-)

John MoffatTutor13y ago#3

You are welcome :-)

CChloe11y ago#4

In this example the answers are not more or less than 1 which is what I thought that the PED had to be?

John MoffatTutor11y ago#5

Errr......are you sure you did not mean to write something else? Both of the answers are more than 1 :-)

CChloe11y ago#6

Ignore me on this. I was expecting the numbers to be more like 1.2 or 0.95 for example. They do not need to be in a certain range I take it.

John MoffatTutor11y ago#7

No - they don't need to be in a specific range.