Answer to Question #87510 in Macroeconomics for Nicolas

Question

Analysts have determine d that the price elasticity of 1,4 is aweighted average figure.during peak hours in the morning and evening the price elasticity of demand is 0,8 and during the rest of the day it is 2,6 .how would this information affect pricing strategy?

Answer 1

Price Elasticity of demand shows the graph between the price and the quantities demanded with a given price.It shows the response of demand with unit change in price. It can be calculated by percentage change in quantity demanded to percentage change in price. If this ratio is greater than one the curve is elastic. Which shows that there is great influence of price on quantity demanded otherwise for inelastic curve the ratio is less than 1. Under such circumstances, there is minute effect in quantity demanded by change in price strategy.

Here the average quantity demanded over the whole day is 4 units, when the average price is 1 unit.Maximum demand is in morning or evening which is 8 unit, when the price is zero. Means even without payment, the max quantity demanded is only 8 unit.While in remaining hours of the day, the quantities demanded is 6 units when the price is 2 unit.