Elasticity
Do you increase revenue by lowering or raising prices? It all depends on the price elasticity of demand for your product or service. Brian Spencer is looking for an investment from the sharks so he can mass market his amazingly cool, extreme-sport pogo stick. However, their advice is to increase his price (by 100-400%!). Though he’ll sell fewer units with a higher price, his total revenue will increase if demand for his product is inelastic. What causes demand to be inelastic? Ask your students this question and then see if they think the demand for Vurtego pogo sticks will be inelastic.
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1. Here’s why drug prices are so high in the US – Bloomberg, 2+ minute video
High pharmaceutical prices are controversial because they are considered a necessity for those who depend on them. However, that inelastic demand could be one factor for the high prices.
2. Straight Talk commercial – 30 second video
Cut your cell phone expenses in half and all of a sudden you feel a bit richer, but does that mean you think you should be driving a significantly more expensive car? This commercial is a fun way to begin a discussion on income and substitution effects.
