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    Why is it that a profit-maximizing businessman would always raise prices when facing an inelastic demand curve, but might or might not raise prices when facing an elastic demand curve?

    Can anyone explain the reasoning for this?:o:
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    Isnt it simple, an increase in price is going to have a smaller percentage decrease in quantity demanded, which essentially leads to more revenue.
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    Elastic: Consumers are SENSITIVE to a change in price (eg: if the price of Tetley Tea goes up, people will demand more PG Tips Tea bags)
    Inelastic: Consumers are INSENSITIVE to a change in price(eg: if these price of cigarettes go up, people will keep paying for cigarettes. (there is no CLOSE substitute)).

    So if a businessman raises the price of cigarettes there will be less of a change in quantity demanded. You can illustrate this easily by drawing both an elastic and an inelastic demand curve. Hint: The area of an inelastic demand curve with 2 prices will be much smaller, than the 2 prices illustrated on an elastic demand curve.
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    (Original post by yellowstudent)
    Why is it that a profit-maximizing businessman would always raise prices when facing an inelastic demand curve, but might or might not raise prices when facing an elastic demand curve?

    Can anyone explain the reasoning for this?:o:
    are these uni questions btw?
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    (Original post by yellowstudent)
    Why is it that a profit-maximizing businessman would always raise prices when facing an inelastic demand curve, but might or might not raise prices when facing an elastic demand curve?

    Can anyone explain the reasoning for this?:o:
    Inelastic example: Ferrari
    Ferrari's are aimed at the rich, the wealthy. if the price increases, rich footballers arent gonna be like "**** man. cant afford dat car no more". So businessmen will increase the prices of inelastic products in order to maximise profits as the demand of these products is NOT SUBJECT to fluctuating prices.

    Elastic example: Tomato Soup
    If a shopper has two options, Tesco's own label tomato soup which costs 99p or Heinz's tomato soup which costs £1.49, the shopper will always pick Heinz as it is a better brand. But say Heinz increases their price of tomato soup to £4.99. Shoppers might need to buy a lot of this tomato soup. Imagine university students are the shoppers. Would you spend £4.99 on a can of tomato soup each day?!?! no!! So the businessman cannot increase prices on elastic products.

    Inferior goods: Tesco's own label tomato soup
    When there is a recession, people are more likely to buy Tesco's own label tomato soup than Heinz.
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    This thread should be in the academic forum.
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    Eyy guys, thanks so much! Here's what I came up with,

    If a businessman were to raise the price of a product facing an inelastic demand curve, this would increase profits; however if the businessman were facing an elastic demand, he would not raise the price because consumers will not purchase it therefore decreasing profits.

    A common example of an inelastic demand is gas. In the United States, gasoline has become increasingly popular to the point where a gallon of gas can go from $1 to $5 within 1 day and consumers will still pay for it. A profit-maximizing businessman would find it very profitable to increase the cost of gas because the demand for the product will not change.

    One example of an elastic demand is a Snickers candy bar. This product has an elastic demand because if the price of $1 goes up to $3, consumers will either not purchase it or find an alternative. A profit-maximizing businessman would not increase the price of their Snicker’s candy bars because the demand will decrease.
    In conclusion, the elastic demand for a good will rise or fall, depending on the price whereas an inelastic demand for a product will not.

    You guys are cool :cool: :yes:
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    (Original post by yellowstudent)
    Eyy guys, thanks so much! Here's what I came up with,

    If a businessman were to raise the price of a product facing an inelastic demand curve, this would increase profits; however if the businessman were facing an elastic demand, he would not raise the price because consumers will not purchase it therefore decreasing profits.
    Not quite, the % change in price would be lower than the % chance in demand. Therefore profits would go down, consumers won't stop buying it altogether though.

    A common example of an inelastic demand is gas. In the United States, gasoline has become increasingly popular to the point where a gallon of gas can go from $1 to $5 within 1 day and consumers will still pay for it. A profit-maximizing businessman would find it very profitable to increase the cost of gas because the demand for the product will not change.
    Yeah that's it.

    One example of an elastic demand is a Snickers candy bar. This product has an elastic demand because if the price of $1 goes up to $3, consumers will either not purchase it or find an alternative. A profit-maximizing businessman would not increase the price of their Snicker’s candy bars because the demand will decrease.
    In conclusion, the elastic demand for a good will rise or fall, depending on the price whereas an inelastic demand for a product will not.
    Again be careful what you say, what I would say would be a repetition of what I said above, consumers won't stop buying it at all unless it's perfectly elastic.

    What I've said may have been what you were thinking however you won't get the marks if you say consumers stop buying a product altogether if you increase the price and it's price elastic.
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    hey guys, i googled 'economics tutors in london', and got this site, and found grabatutor

    all ex LSE/Cambridge grads


    my tutor was truly brilliant! converted a C into a high A in my AS economics resits, was well chuffed!
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