Question

Label the following scenarios as examples of elastic, inelastic, or unit elastic demand. When Ruko, a device used to stream movies at home, increases prices by 42% total revenue decreases by 59%. When Cinema Supreme decreases ticket prices by 5%, total revenue does not change. When BlueBox, a DVD rental kiosk, increases its prices by 56%, total revenue increases by 22%. You can tell whether the price elasticity of demand is elastic, unit elastic, or inelastic based on whether the price effect or the quantity effect is larger. The price effect is the change in revenue due to a change in price whereas the quantity effect is the change in revenue due to the change in quantity demanded.

Answer 1

Answer:

The Streaming device - elastic

An elastic good is a good whose demand falls a lot, or proportionally, if the price rises. In this case, the price of the streaming device rose by 42%, and revenue fell proportionally even more, by 59%, thus, the streaming device is a very elastic good.

Cinema ticket prices - Unit elastic

A perfectly inelastic good is a good whose demand does not respond to price changes. In this case, even if the ticke prices were lowered, demand stayed the same because revenue stayed the same.

DVDs - Inelastic

The DVDs are inelastic because even if the prices were raised, demand was not affected, and in fact, it grew. An inelastic good is a good whose demand only responds to price in a limited way.