An article published on Music giant chops prices to combat downloads, “you can find the article in the link below”
The given data in the article may provide us with some important numbers like (the price, the demanded quantities and their changes percentage, total revenues which enables us to know the elasticity of the good and other info.
The table below show the price, Quantity demanded and the total revenue extracted from the given information:
Price$ | Quantity (Million) | Total Revenue ($) |
21 | 48 | 1 Billion |
15 | 62 | 930 Million |
- old Prices are given ($19.98, $20.98 and $21.98) so I considered the old price is 21$
- new price is $14.98, I assumed it is $15
We can see that the price elasticity of demand = 0.76 As long as it’s less than 1 then the CD’s are considered inelastic good
When the goods are inelastic and the prices fall the total revenue fall also and this happened when the price decreased to about $15, the total revenue reduced from 1 billion$ to 930 million$.
Reducing the price will not bring a higher revenue to the CD’s producers, they have to think of a way to make the downloads from the Internet with charge, and when this charge goes high, the consumers will think of a substitute good, which is buying CD’s, in this case the demand for the CD’s will increase leading to an increase in the total revenue.
Below is the Graph drown from the above table
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