Economics Essay Example | Topics and Well Written Essays - 500 words - 20

Economics - Essay Example This is shown in diagram 1. D1 is the least price inelastic demand curve and D3 the most price elastic with D2 lying in between in terms of price elasticity. The initial equilibrium price is assumed to be 10 dollars per unit and the quantity demanded at this price is 3 units. Thus the initial revenue is 30 dollars. Now suppose the unit price falls to 6 dollars. If D1 is the demand curve, then the quantity demanded rises to 4 units. Thus the revenue in this case falls to 24 dollars. If D2 is the demand curve, the quantity demanded rises to 6 units and the revenue increases to 36 dollars. For D3, the quantity demanded rises to 10 units and consequently the revenue jumps to 60 dollars. Similarly, in case of a price rise, we would have observed that the fall in demand being minimal in case of D1 and greatest in case of D3. In the context of Will Bury’s business to appropriately estimate the viability of engaging himself fulltime in pursuit of his plans leaving his present job, the first step is to identify the potential revenue derivable. And to aptly estimate this, and to address other issues like what prices should be charged, whether price cuts can improve sales etc, the importance of identifying the price elasticity of demand for his product surfaces. If there is high price sensitivity in the market in which Will Bury seeks to compete, then his strategy of offering cheaper alternatives to the already present products is likely to be successful. From the fact that the usual clients of digital and audio books come from relatively affluent economic tiers, it can be predicted that the demand is likely to be elastic. This is reinforced by the existence of a number of close substitutes. However, it should be noted that the products that Will is offering actually can be classified into a few segments according to likely buyers and their preferences since these will actually result in different price elasticities for the different groups. Books which are no