Price Elasticity of Demand Question
Anyone wants to take a stab at this?
Dory’s CFO is looking for opportunities to improve margins and has obtained the following information from the sales manager of the company’s high end fishing poles:
In 2015, Dory’s sold 125,000 fishing poles at a price of $80.00 per rod to their largest client, Sports World. Sports World has indicated that if Dory’s increases the price of the product by 3%, they would purchase 132,500 poles this year; but if they raise the price by 10%, his order would stay at 125,000 poles.
Based on this information, what’s approximately the implied price elasticity of the high end fishing poles?
- Negative 0.7
- Negative 0.8
- Zero
- Positive 0.1
So demand is (1 - 125/132.5)% lower when price is (1.1 / 1.03)% higher. Pretty straightforward calculation.
Yup, you're right. it's been a while since I studied micro. Quick comment: what confused me was if you increase the price by 3%, the quantity demanded increases by 6% (132.5/125 -1), which implies PED of 2.0. On the other hand, if price increases by 10%, Qd remains 0, which implies PED of 0. How do these calculations reconcile with what you did?
GoldenCinderblock's wife knows all about "micro"
How, please?
Trick question. Of course Sports World "says" they will buy less but it's not like they can be trusted. Get another data source.
It has been a long time since I have done any microeconomics and I did not like these classes. There seems to be two different elasticities of demand: one for a 3% price increase and one for a 10% price increase. I really do not understand how quantity could go up if the price goes up. Wouldn't this imply a positive elasticity of demand. For the 10% increase in price, there is no change in quantity, which would suggest that demand is inelastic.
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