Economics
Does the price cut pay?
A shop cuts the price of a game from £10 to £8 and weekly sales rise from 100 to 130. How price-sensitive are buyers, and did revenue go up?
- Hint 1Price elasticity of demand = percentage change in quantity ÷ percentage change in price.
- Hint 2Revenue is price × quantity.
- Quantity rose 30% and price fell 20%.
- Elasticity ≈ 30 ÷ (−20) = −1.5: demand is elastic.
- Revenue went from £10 × 100 = £1,000 to £8 × 130 = £1,040.
- With elastic demand, a price cut raises revenue. Profit is another question: the extra 30 games cost money to supply.
Where it lands: Elasticity about −1.5 (elastic); revenue rose from £1,000 to £1,040.
The trap: Equating higher revenue with higher profit.
What a tutor might ask next: If each game costs the shop £7, did the price cut raise profit?
Now do one out loud. In the interview you think aloud with a tutor. Try an Economics problem with hints, follow-ups and Mia's feedback on how you think.