Topic Videos
Inelastic Demand - Prices and Producer Revenue
- Level:
- AS, A-Level, IB
- Board:
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 16 Feb 2019
This short revision clip cements student understanding of the importance of price elasticity of demand for the total revenue of a supplier when the market price changes. When the coefficient of price elasticity is less than one, an increase in market price leads to an increase in total revenue.
3 causes of a business facing a relatively price inelastic demand curve
- Small number of close substitutes in the market – meaning less choice for consumers
- High cost of substitution – e.g. perhaps due to customers signing contracts with penalty clauses
- Strong brand loyalty / habitual consumer preferences
2 possible impacts of this for either their supplier or their customers
- Ability to raise price to increase total revenue and achieve a higher profit margin
- Consumer may lose some consumer surplus e.g. if a firm takes advantage of differences in price elasticity of demand to engage in price discrimination
1 strategy a firm might use to make demand price inelastic
- Heavy spending on persuasive advertising and marketing
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