Suppose, in deciding what price to set for its latest animated movie, Disney decided to charge either $14.95 or $12.95 for a video or DVD. They estimated the demand for these videos or DVDs to be quite elastic. What price did it choose and why?
2007-04-11 06:59:54 · 5 answers · asked by La Flaca 4 in Social Science ➔ Economics
Elastic demand means the following:
Consumers will respond to a change in price by changing their demand for the product in the opposite way. That is, if price goes up, people buy less --- price goes down, people buy more.
Therefore if Disney knows that people are elastic about their DVD they want to set the lower price in order to get the most people to buy!
[Think about the other situation to help with this. Say it was a Harry Potter book. People are going to buy the new HP book no matter what the price. People are very INelastic about the book. Of course, the publisher is not going to set some crazy high price, but they also don't have to set a lower price just to get people to buy, like Disney would here.]
2007-04-11 08:06:34 · answer #1 · answered by Anonymous · 0⤊ 0⤋
$12.95.
The more elastic the demand, the more a higher price will cause the consumer to choose a different form of entertainment (going to the movies in person or an on-demand movie on TV)
2007-04-11 07:06:29 · answer #2 · answered by lunatic 7 · 1⤊ 0⤋
They would have choosen $12.95 since high price elasticity means that people are very sensitive to price. They will see more videos at $12.95 which will compensate for the lower price.
2007-04-11 08:16:35 · answer #3 · answered by Anonymous · 0⤊ 0⤋
Elasticity is the measure of the responsiveness of a commodity to a change in price. The price elasticity of a good characterizes the good. If a particular commodity is what we call a "basic" need, it tends to be inelastic. This means that a 1% change in the price of the commodity will create a less than 1% change in the quantity demanded for that good. On the other hand, if a good is inferior, it tends to be more elastic or in other words more responsive to the price changes. With regards to the oil industry, oil as a commodity is highly values in terms of its application but its supply is limited. Since the supply of such a good is limited, sellers, do not act as if they are in a "perfectly competitive market" or as price takers. Sellers of such commodities become dictators of price. And since oil is regarded as a more or less basic good, it is inelastic or is unresponsive to price change.
2016-05-17 21:04:05 · answer #4 · answered by ? 3 · 0⤊ 0⤋
$12.95, lower price
Elasticity is designed precisely to answer this question.
Elasticity is ratio of % change in demand to % change in price that caused change in demand.
So if elasticity is high, increasing price means you will loose so many customers that your total revenue will fall. So you should go with lower price
2007-04-11 08:07:49 · answer #5 · answered by Anonymous · 0⤊ 0⤋