Answer to Question #174062 in Microeconomics for Anthony Jerod Haygood

Question

In your responses, comment on at least two posts from your peers and share an example of a company that experienced a change in revenue as the result of a change in the price of the good or service they provided. After reading your peers’ posts, explain which determinants of price elasticity of demand could be the cause of the change in demand.

Answer 1

In 2012, Denmark’s biggest energy company, Danish Oil and Natural Gas, slid into financial crisis as the price of natural gas was plunging by 90% and S&P downgraded its credit rating to negative, as a result the total revenue of the company decreased.

The four factors that affect price elasticity of demand are (1) availability of substitutes, (2) if the good is a luxury or a necessity, (3) the proportion of income spent on the good, and (4) how much time has elapsed since the time the price changed.