Calculating Elasticity - 17 |
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Consider the market for music CDs. When the price of CDs is $30 per unit, consumers buy 6 per year. When the price falls to $20 per unit, consumers buy 12 per year. |
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Remember, we ignore the minus sign when calculating price elasticity. When the price of CDs falls from $30 to $20, and the quantity sold increases from 6 per year to 12 per year, the price elasticity of demand is 1.67: CDs are price elastic over this price range. What about a further reduction in price? Will this also lead to even greater revenues for firms? |