Question

A company sells a toy that many kids really want, so changing its price a little bit doesn&#x27;t change how many toys are bought much. If the company wants to make more money, should it make the toy&#x27;s price higher or lower?

Accepted Answer

The company should make the toy&#x27;s price higher. This scenario describes a product with inelastic demand. Inelastic demand means that when the price of a good changes, the quantity of that good customers want to buy changes by a proportionally smaller amount. For this toy, because many kids strongly desire it, a small increase in its price will only lead to a minimal decrease in the number of toys purchased. Total revenue is the total money a company collects from sales, which is calculated by multiplying the price of each item by the total quantity of items sold. When demand is inelastic, an increase in price causes total revenue to rise because the revenue gained from selling each unit at a higher price more than compensates for the small reduction in the total number of units sold. Conversely, lowering the price when demand is inelastic would decrease total revenue because the small increase in sales volume would not offset the lower price received for each toy.

A company sells a toy that many kids really want, so changing its price a little bit doesn't change how many toys are bought much. If the company wants to make more money, should it make the toy's price higher or lower?

The company should make the toy's price higher. This scenario describes a product with inelastic demand. Inelastic demand means that when the price of a good changes, the quantity of that good customers want to buy changes by a proportionally smaller amount. For this toy, because many kids st....

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A company sells a toy that many kids really want, so changing its price a little bit doesn't change how many toys are bought much. If the company wants to make more money, should it make the toy's price higher or lower?

The company should make the toy's price higher. This scenario describes a product with inelastic demand. Inelastic demand means that when the price of a good changes, the quantity of that good customers want to buy changes by a proportionally smaller amount. For this toy, because many kids st....