Activity 2j: Price elasticity of demand
| Scenario | H/M/L PED | Reason | Event 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. | Low | Toilet paper is a necessity | Increase - the percentage increase in price > percentage decrease in demand |
| Qantas reduces its airfares to the US in the middle of Australia's largest recession | High | Ordinarily 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. | Low | Cigarettes 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. | Low | These are temporily seen as a necessity. | Increase |
| Samsung increases the price of its flagship phones to cover the cost of integrating 5G technology | High | This 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 luxury | Decrease |
| The government makes a coronavirus vaccine available to the public free of charge. | Low | Many will see the vaccine as a necessity and it takes up a small percentage of income | If 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. |