First, figure out how elastic demand is at the prices. (PED) Applying the Price Elasticity of Demand formula: Q2 - Q1 / ((Q2 + Q1) / 2)) / ((P2 - P1) / ((P2 + P1) / 2)) is equal to PED. Where : 150 units per month is the initial quantity demanded (Q1). Q2: 100 units each month is the final quantity demanded. P1 = Starting Cost = $50 P2 = $60 as the final price.
Replace the numbers in the formula: PED is equal to ((60 - 50) / ((60 + 50) / 2)) / ((100 - 150) / ((100 + 150) / 2)) (-50 / 125) / (10 / 55) is PED. -0.4 / (0.182) is PED. PED -2.20 Emma's apparel item has a price elasticity of demand of -2.20.
a. Interpretation: Emma's apparel item has price elastic demand because the PED's absolute value is more than 1 (|PED| > 1). This indicates that consumers are very sensitive to price fluctuations and that a 1% rise in price will cause the amount demanded to drop by more than 2%. b. Implications: Emma's Boutique should exercise caution while raising prices as it may result in a large drop in sales, due to the price elastic demand. Emma can think about cutting pricing in order to draw in more clients and raise overall income in order to optimize revenue. …show more content…
Consequences: Emma may profit from this information by strategically lowering her rates in comparison to the rival and enticing clients who could have shifted to the rival's product with special offers or incentives. Through a comprehension of the connection between the two products, Emma can effectively compete and hold onto her market share. In conclusion, studying demand elasticity offers Emma's Boutique useful information for strategic decision-making about product positioning, marketing initiatives, and price in the cutthroat world of fashion retail. Emma can maximize her company plan to increase customer happiness and revenue growth by knowing how responsive her consumers are to pricing adjustments, income fluctuations, and cross-price