You just opened a flower shop and are trying to understand
pricing issues. You were told that elasticities are very important in
determining prices and what products to supply, so you decide to
investigate this concept.
You call your friend, an economics professor, and ask,
"What is the price elasticity of demand? What determines it? What is
elastic and inelastic demand?"
To really understand it, compute the following price
elasticities of demand:
The price of a laptop increases by 20% and there is a 40% drop
in the quantity demanded.
The price of a pack of cigarettes increases by 10% and there is
a 5% drop in the quantity demanded.
Of the above examples, which is more elastic,
and which is the least elastic? Why? Answer the following questions:
Why is elasticity an important concept for a
o Bridge tolls
o Beachfront properties
o Gourmet coffee
o Cell phones
Now that you are an expert on elasticities, what do you think
would be the best time of year to raise prices of flowers, and
What do you think the elasticities are in the flower business?