Price Elasticity - Essay Example

Thus, the revenue, in this case, falls to 24 dollars. If D2 is the demand curve, the quantity demanded rises to 6 units, and the revenue increases to 36 dollars. For D3, the quantity demanded rises to 10 units and consequently, the revenue jumps to 60 dollars. Similarly, in case of a price rise, we would have observed that the fall in demand was minimal in the case of D1 and greatest in the Ausaf D3. In the context of Will Bury’s business to appropriately estimate the viability of engaging him in the full-time time pursuit of his plans to leave his present job, the first step is to identify the potential revenue revealable. And to aptly estimate this, and to address other issues like what prices should be charged, whether price cuts can improve sales, etc., the importance of identifying the price elasticity of demand for his product surfaces. If there is high price sensitivity in the market in which Will Bury seeks to compete, then his strategy of offering cheaper alternatives to the already present products is likely to be successful. From the fact that the usual clients of digital and audiobooks come from relatively affluent economic tiers, it can be predicted that the demand is likely to be elastic. This is reinforced by the existence of several close substitutes. However, it should be noted that the products that Will is offering actually can be classified into a few segments according to likely buyers and their preferences since these will result in different price elasticities for the different groups. Books which are no longer under copyright protection are already likely to be available on the internet which thereby reduces the uniqueness of Will’s products for such books. On the other hand, books which are still under copyright protection are likely to be less available in alternative formats. Further, consumers have exhibited preferences for digital reading for business purposes. Therefore, the most unique product Will can offer shall be digitized business books which still are under copyright protection. These are likely to have the least price elasticity and thus Will can charge charge these with the additional revenue being channeled into advertising the advantages of his products. On the other hand, with a large number of substitutes available in digitized formats coupled with the consumers for non-digital reading for pleasure is likely to translate into higher elasticities of demand for digitized non-business books no longer under copyright protection. This is the segment where lowering prices can lead to higher sales.

Finally, Will should be wary of accepting his artist friend’s advice and indiscriminately increasing prices in hope of higher sales. This is because there are two fundamental differences between her and his products. First, she sells art that is necessary is bought to satisfy luxurious tastes. In the case of such products often customers have penchants for higher-priced items more than lower-priced ones. This is known as the ‘snob’ effect. Secondly, whilst rising prices Wlll’s artist friend also increased advertising, which itself may have led to increased sales.