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PLACEHOLDERPLACEHOLDERPLACEHOLDERPLACEHOLDER

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So you mean to say it is possible for quantity supplied to increase in response to price? Wouldn't that mean that you have made use of PES after all? Work on your elaboration so that it is more convincing.

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Good point! (consumers may not sacrifice convenience just for a cheaper flight)

For YED, just because there was no mention of a change in income/economy in the preamble, does it mean that we cannot bring it in if relevant?

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Is it true that the demand for normal goods increases more than proportionately as income increases?

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Is "increase in DD" one of the non-price determinants of SS?

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-ESSAY OUTLINE-

[INTRO]

[POINT 1]: PED is useful.

• airline is aware that demand for airline tickets is price elastic

• therefore the reduction in price of airline tickets leads to a more than proportionate increase in quantity demanded

• hence with the increase in quantity demanded of airline tickets, then there will be an increase in revenue

[POINT 2]: PES is not useful

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Aspect 1:

Using YED

state definition

what sign means

interprete with preamble, state impacts on profit- rising affluence and urbanisation, increase in income, courts sell normal goods, so increase in demand and increase in profit etc

Therefore, YED explains the rise in profits

However, YED does not explain as: subjective to

Tastes and preferances

Aspect 2:

Using PED

State definition

-0.33 is price inelastic

Therefore advertising discount in price does not explain

Rise in profit since decrease in price will lead to

Less than proportionate increase in demand.

PED does not explain as:

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Perspective 1:PED and XED is useful in explaining this airline's pricing policy for it's flights.

Perspective 2: YED and PES is not useful in explaining this airline's pricing policy for it's flights.

PED: Firms are profits maximisers. Airlines being price elastic, will have a more than proportionate change when price changes. Hence when price decreases even by alittle, quantity demanded would increase a lot. This results in earning more revenue.

However this might not be accurate in reality as it's not as convenient and consumers would not sacrifice their convenience just for a cheaper flight.

YED: it is not useful as it touches on the consumer's income level. There is no change of income or in economy in the preamble hence not relevant and thus not useful.

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Intro

Point 1: PED useful

-airline tickets are price elastic

-reduction in price will lead to a more than proportionate increase in quantity demanded of airline tickets

-fall in revenue due to the fall in prices is less than the increase in revenue due to the rise in quantity demanded. Hence, total revnue increase

Point 2: PES is not useful

-there is a fixed maximum number of seats on a plane

-hence, when demand increases with supply being price inelastic,airlines will not be capable of increase their supply as the increase in quantity supplied is less than proportionate to increase in price.

Point 3: XED is useful

-XED assists in pricing strategies

-thats why they have lowered the price of their tickets

-they have done so to

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Perspective 1: YED is useful in explaining the rise in courts profit. This is because when YED = 0.5, courts appliances are normal goods and demand for these goods will grow more than proportionately as compared to the rise in income.

Perspective 2: However, YED is not entirely useful as it is based on non-pricing aspects, doesn't involved any change in the price of the good. In this case, courts' offered discounted prices and YED is unable to explain this factor.

Perspective 3: PED is useful because PED here is 0.33 which shows that it is relatively price inelastic. This means that a change in the price of the good itself results in a less that proportionate change in quantity demanded. In this case, courts offered discounted prices in which it is not reflected through PED.

Perspective 4: However, PED is not entirely useful because it assumes ceteris paribus, which is not applicable in real life. It only concerns pricing and aspects but does not concern non-pricing aspects.

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Perspective 1: explain the profits earned

YED--

household appliances: normal good (necessity) → inelastic

↑income, ↑ DD

therefore ↑ affluence and urbanization= ↑ income, ↑DD, Courts produce more SS, ↑ Revenue

PED--

Price inelastic→ ▲ in price of good= less than proportionate change in quantity demanded

↑ in price, generally price inelastic, still ↑ DD, ↑ SS, profits earned

Perspective 2: does not explain profits earned

unrealistic- ceteris paribus does not exist in real life

YED--

unpredictable as it is also dependent on consumers' income levels, different consumers respond differently

PED--

only measures quantity demanded when there's a ▲ in price of good itself, does not consider non-price determinants that could affect DD