Elasticity is a measure of the responsiveness of one variable to changes in another variable. Economists use the concept of elasticity to help make predictions about demand for a given good or service. Specifically, they use the concepts of own price elasticity of demand, cross price elasticity of demand, and income elasticity of demand.
In your original post, answer the following:
- What is the meaning of own price elasticity of demand, cross price elasticity of demand, and income elasticity of demand?
- How can knowing these values help improve the quality of management decisions?
- Revenue at a major cellular telephone manufacturer was $2.3 billion for the nine months ending December 31, up 85 percent over revenues for the same period last year. Management attributes the increase in revenues to a 108 percent increase in shipments, despite a 21 percent drop in the average blended selling price of its line of phones.
- Using the concept of elasticity, explain why revenues increased despite the decrease in price.
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