Copyright Mark Van Couwenberghe, 2017

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Copyright Mark Van Couwenberghe, 2017 81 3) Exercises 1) The price of a train ticket is € 9,50. Monthly sales = 40.000 tickets. The price increases to € 10,07. New monthly sales = 39.400 tickets. Calculate price elasticity of demand and draw your conclusion on the elasticity. What is price elasticity? PRICE MECHANISM ON COMPETITIVE MARKETS

82 2) A baker sells 500 breads a day. Unit price = € 2,20. Copyright Mark Van Couwenberghe, 2017 82 2) A baker sells 500 breads a day. Unit price = € 2,20. He wants to increase the price to € 2,31. The baker expects his sales will decrease by 2%. Calculate price elasticity of demand and draw your conclusion on the elasticity. What is price elasticity? PRICE MECHANISM ON COMPETITIVE MARKETS

83 3) Imagine the demand for a product is: Q d = - 5 . P + 300 Copyright Mark Van Couwenberghe, 2017 83 3) Imagine the demand for a product is: Q d = - 5 . P + 300 The unit price decreases from € 10,00 to € 8,00. Calculate price elasticity of demand and draw your conclusion on the elasticity. What is price elasticity? PRICE MECHANISM ON COMPETITIVE MARKETS

84 4) The price elasticity of demand is – 1,2 Copyright Mark Van Couwenberghe, 2017 84 4) The price elasticity of demand is – 1,2 The shop owner decreases the unit price by 6% The sales before the price decrease = 5.000 units Calculate the new sales (after the price decrease) What is price elasticity? PRICE MECHANISM ON COMPETITIVE MARKETS

85 5) The price elasticity of demand is – 0,8 Copyright Mark Van Couwenberghe, 2017 85 5) The price elasticity of demand is – 0,8 The shop owner increases the price from € 80,00 to € 100,00 The sales before the price increase = 150.000 units Calculate the new turnover (after the price increase) What is price elasticity? PRICE MECHANISM ON COMPETITIVE MARKETS

86 6) The price elasticity of demand is – 0,2 Copyright Mark Van Couwenberghe, 2017 86 6) The price elasticity of demand is – 0,2 The shop owner increases the price from € 20,00 to € 22,00 The sales before the price increase = 500.000 units Calculate the new sales (after the price increase) What is price elasticity? PRICE MECHANISM ON COMPETITIVE MARKETS