Activity 2(j)

Activity 2j: Price elasticity of demand

ScenarioH/M/L PEDReasonEvent of Revenue
Fruit and vegetable sellers increase the price of their cherry tomatoes from $2,50 to $3,00 per kilos, and observe that their sales drop from 1000 to 500 kilos per day.High(because > 1)The ralatively high number of substitutes for cherry tomatoes encourages consumers to demand alternatives (such as Roma tomatoes).Decrease
In response to the pandemic, the local supermarket increases the price of toilet paper to 60 cents per roll, from 50 cents per roll.LowToilet paper is a necessityIncrease - the percentage increase in price > percentage decrease in demand
Qantas reduces its airfares to the US in the middle of Australia's largest recessionHighOrdinarily airfares would have a high PED because they take up a large percentage of income and Qantas is faced with a lot of competitors. However, the decrease in price in this case may not result in a larger % increase in demand because less people can afford it.(if it is high then revenue should increase)
The government maintains its commitments to increase cigarette taxes by 12.5% per annum.LowCigarettes are addictive so may be seen by some consumers as a necessity with few substitutes. As the price increases,however, they take up a larger percentage of income so they take up a larger percentage of income so the PED may start to rise.Revenue will decrease because the price received by the supplier is likely to remain the same(or fall) but the quantity sold should fall.
The government runs an extensive education campaign that outlines the long term consequences associated with consuming sugar.Low(but increasing)Ordinarily sugar would be a product with a low PED because it is addictive(as per cigarettes). However, the advertising campaign may increase the sensitivity of consumers to price changes as they realise it is less of a necessity.Decrease
Mylan raises the price of an EpiiPen 2pack from $100 to $600 over a ten-year period.Low For those who require an Epi-Pen for their survival it is a necessity and with a patent pending, there is not viable substitute.Increase
The coronavirus pandemic leads to a 50% increase in the price of facemasks.LowThese are temporily seen as a necessity.Increase
Samsung increases the price of its flagship phones to cover the cost of integrating 5G technologyHighThis phone is faced with a lot of competition so tehre are a large number of substitutes. Phoneas are also relatively expensive(taking up a large % of income) and if one already has a phone then a new phone might be seen as a luxuryDecrease
The government makes a coronavirus vaccine available to the public free of charge.LowMany will see the vaccine as a necessity and it takes up a small percentage of incomeIf the subsidy is paid directly to the supplier, then it is likely to increase their revenue.
The Victorian government offers to pay for half the price of solar panels(a 50% reduction in price).High Ordinarily solar panels would take up a large % of income so they consumers would be highly responsive to a cut of prices.The solar supplier will experience an increase in demand without suffering a fall in the price they receive.