"Price Elasticity"

Price Elasticity

Δ in Quantity demanded

  Δ in Price

Price Elasticity relates to consumers responsiveness of demand to modifications in price for a certain products; on the other hand price inelasticity is where the demand for a product does not increase or decrease congruently with a fall or rise in its price. After experimenting with various prices in the simulation and inputting those information on the spread sheet, it is apparent that when the price increase of $0.21 to and $0.53, will result in price elasticity as they are greater that 1%. For example, a price of $6.35 yields an elasticity of -4.06, a price of $6.08 yields an elasticity of -3.65 and a price of $5.82 yields an elasticity of -2.62.

In comparison, when the price of Allround’s product was reduced, to t$5.29, $4.76, $4.50 and $4.23, the company experienced inelasticity, of -0.79, -0.75 and -0.70. This is pretty interesting to me as I was under the assumption that if the prices of some products were lower, making them more affordable to consumers, then it would, not only increase sales, but would also increase revenue. In this exercise I see that that is not true, for example when the price of the MSRP for the product was $4.23, the only factor that increased was