Suppose the price elasticity of demand for textbooks is two, and the price of the textbook is increased by 10%. By how much does the quantity demanded fall? Enter the result and discuss the reasons for the fall in quantity demanded.
In this scenario, with a price elasticity of demand of two, a 10% increase in the price of textbooks would result in a 20% decrease in the quantity demanded. This is because the price elasticity coefficient of two indicates that for every 1% increase in price, the quantity demanded decreases by 2%.
The fall in quantity demanded can be attributed to the responsiveness of consumers to price changes. As the price of textbooks increases, consumers may seek alternative options such as buying used books, borrowing from libraries, or opting for digital versions. Additionally, higher prices may lead some consumers to cut back on purchasing textbooks altogether, especially if they perceive the price increase as substantial.
Understanding the price elasticity of demand is crucial for businesses to make informed pricing decisions and anticipate how changes in price will impact the quantity demanded. By analyzing these factors, companies can adjust their pricing strategies to maintain consumer demand while maximizing revenue.
In this scenario, with a price elasticity of demand of two, a 10% increase in the price of textbooks would result in a 20% decrease in the quantity demanded. This is because the price elasticity coefficient of two indicates that for every 1% increase in price, the quantity demanded decreases by 2%.
The fall in quantity demanded can be attributed to the responsiveness of consumers to price changes. As the price of textbooks increases, consumers may seek alternative options such as buying used books, borrowing from libraries, or opting for digital versions. Additionally, higher prices may lead some consumers to cut back on purchasing textbooks altogether, especially if they perceive the price increase as substantial.
Understanding the price elasticity of demand is crucial for businesses to make informed pricing decisions and anticipate how changes in price will impact the quantity demanded. By analyzing these factors, companies can adjust their pricing strategies to maintain consumer demand while maximizing revenue.