Explain how Demand, Elasticity, and Total Revenue are all related to each other. Explain this relationship using at least two examples that incorporates all three concepts
I have the concepts and how they relate I just need one more example and my brain is fried
Sure! I'd be happy to help you with another example that incorporates the concepts of demand, elasticity, and total revenue.
Let's say you are the owner of a bakery and you sell freshly baked cupcakes. You have noticed that when you increase the price of your cupcakes, the total revenue decreases. This suggests that the demand for your cupcakes is elastic.
Example:
1. Elastic Demand and Total Revenue:
Let's assume you normally sell your cupcakes for $2 each, and you sell about 100 cupcakes per day, generating a total revenue of $200. Now, if you decide to increase the price to $3, the quantity demanded decreases to 80 cupcakes per day. Even though you are making $3 per cupcake, the total revenue declines to $240. This example demonstrates that the increase in price has resulted in a more than proportionate decrease in quantity demanded, leading to a decrease in total revenue. The demand for cupcakes in this scenario is considered elastic.
2. Inelastic Demand and Total Revenue:
Now, let's consider a scenario where the demand for your cupcakes is inelastic. Suppose you decide to decrease the price of your cupcakes from $2 to $1.50. As a result, the quantity demanded increases from 100 to 110 cupcakes per day. Although the price has decreased, the increase in quantity demanded is relatively smaller, resulting in a total revenue increase from $200 to $165. In this example, the decrease in price has caused a less than proportionate increase in quantity demanded, leading to an increase in total revenue. The demand for cupcakes in this scenario is considered inelastic.
Another example could be:
Suppose you are the owner of a luxury car dealership. You have noticed that when you increase the price of your luxury cars, the total revenue also increases. This suggests that the demand for luxury cars is inelastic.
Example:
1. Inelastic Demand and Total Revenue:
Assume you normally sell luxury cars for $100,000 each, and you sell about 10 cars per month, generating a total revenue of $1,000,000. Now, if you increase the price to $120,000, the quantity demanded decreases slightly to 8 cars per month. However, the increase in price more than compensates for the decrease in quantity demanded, resulting in a total revenue increase to $960,000. This example demonstrates that the increase in price has led to a proportionately smaller decrease in quantity demanded, resulting in an increase in total revenue. The demand for luxury cars in this scenario is considered inelastic.
These examples highlight the relationship between demand, elasticity, and total revenue. When demand is elastic, a change in price will have a greater impact on quantity demanded, resulting in a more than proportionate change in total revenue. On the other hand, when demand is inelastic, a change in price will have a smaller impact on quantity demanded, leading to a less than proportionate change in total revenue.