question archive Is the price increase the correct decision to raise revenue? Substantiate your answer using price elasticity of demand and income elasticity concepts

Is the price increase the correct decision to raise revenue? Substantiate your answer using price elasticity of demand and income elasticity concepts

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Is the price increase the correct decision to raise revenue? Substantiate your answer using price elasticity of demand and income elasticity concepts.

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In economics, the price elasticity of demand of a certain product measures the responsiveness of the quantity demanded in response to any alteration in the price level of that product in the market, keeping other factors constant. Price elasticity of demand is believed to have a negative relationship with the total revenue level.

The income elasticity of demand for a certain product measures the responsiveness of the quantity demanded in response to any alteration in the income level of that product in the market, keeping other factors constant. Income elasticity of demand is believed to have a negative relationship with the total revenue level.

Also the price elasticity of demand is a more comprehensive and realistic measure in order to determine the total revenue level as it takes into consideration the impact of the price level (which can be determined by the producer) on the demand rather than the income level (which cannot be determined by the producer) of the consumer.