Economics-PED worksheet (determ

Economics

PED worksheet (determinants)

[(5500-5000)/5000]/[(650-700)/700]*1%=(-)1.4%

Sales revenue=before=5000*700=3500000/after=5500*650=3575

PED

A price increase of 10%

Coffee=[(950-1000)/1000]/0.1=(-)0.5

Tea=[(700-800)/800]/0.1=(-)1.25

Iced coffee=[(450-500)/500]/0.1=(-)1

A price decrease of 10%

Coffee=[(1050-1000)/1000]/-0.1=(-)0.5

Tea=[(1000-800)/800]/-0.1=(-)2.5

Iced coffee=[(525-500)/500]/-0.1=(-)0.5

Recommendation

Decrease the price of 10%, because in this case both coffee and iced coffee will be inelastic and only tea will have elastic price.

Chocolate

Chocolate has been an extremely popular product in the West since around the mid-18th century. Nowadays it is a hugely popular component of desserts and may even be eaten as a meal substitute. In the last decade, chocolate has become more popular in Asian-Pacific countries and it has been discovered that certain types of chocolate have health benefits. These factors have led to even greater demand for chocolate both locally and globally. Not only is chocolate extremely popular, chocolate consumers are relatively price insensitive. Chocolate is considered a luxury, but one that is affordable.

Explain what the article suggests about the price elasticity of demand for chocolate.

From the article, we can know that the demand for chocolate is getting greater and greater, and nearly everyone accept the price of all kinds of chocolate since it is affordable. When the demand for chocolate gets bigger, the total revenue will increase if increase the price of chocolate in a certain extend.

How will a knowledge of PED affect firms in this market.

The price of the chocolate market is inelastic, which means that when the demand was really low, however, the price will still not decrease that much because of the inelasticity of the price of chocolates.

Should one firm put up its prices for chocolate bars even if the rest of the firms in the market leave their prices unchanged.

I think it will not be a good choice if all other companies do not set the prices of the chocolate higher. It is mainly because that people always buy things that they can afford. Because when the demand for the chocolates from the firm was not shifting, the firm should not set higher prices for customers, that will cause the total revenue decrease or even make no profits.