Managerial Economics Elasticity of Demand

Question:-

Price rise at the Daily Mirror Sly Bailey, the Trinity Mirror Chief Executive, sought to boost revenues of the Daily Mirror in 2004 by increasing the price of the tabloid newspaper by 3p, from 32p to 35p. The Daily Mirror last increases its price in September 1999 but the tabloid newspaper market in the UK is fiercely competitive and it’s not clear what the effect on its circulation will be.
What price elasticity of demand issues are raised in this case study?

Answer:-

Here perfect elastic demand is raised in the case study. Here the price of the tabloid newspaper is increased from 32p to 35p for that reason move is a sharp U-turn of the policy of Philip Graf, her predecessor, who tried to boost Daily Mirror circulation by cutting the cover price, triggering a price war with its rivals The Sun and the Daily Star. If a minor price change induces a substantial change in a product’s demand, demand is said to be perfectly elastic. With perfectly elastic demand, a small increase in price causes demands to fall to zero, while a small drop in price causes demand to rise to endless demand. The demand is elastic in such a situation, or ep = 00. Price demand elasticity (or elasticity), is the extent to which the actual need for something varies with the changes in prices. Overall, people want less when these things get cheaper. With some items, however, even with a small increase in prices, the demand of the client could drop sharply and for other goods, almost similar, even with a large increase in prices. The term elasticity is used to describe this price sensitivity. More specifically, price elasticity gives the necessary percentage shift when price changes by one per cent keep all else constant (Hirschey and Bentzen, 2016).