Answer to Question #200092 in Macroeconomics for tanya

Question

What impact do you expect this to have on ticket sales? Use supply and demand analysis to predict how ticket prices might be affected. (Assume supply is perfectly inelastic.) 

Answer 1

The key concept in thinking about collecting the most revenue is the price elasticity of demand. Total revenue is price times the number of tickets sold. Imagine that the band starts off thinking about a certain price, which will result in the sale of a certain quantity of tickets. If demand is inelastic at that original quantity level, then the band should raise the price of tickets, because a certain percentage increase in price will result in a smaller percentage decrease in the quantity sold and total revenue will rise. If demand has a unitary elasticity at that quantity, then a moderate percentage change in the price will be offset by an equal percentage change in quantity so the band will earn the same revenue whether it (moderately) increases or decreases the price of tickets.