Definition
- Setting a price
- Setting a price uses the price elasticity of demand: a firm raises revenue by raising its price where demand is inelastic and by cutting it where demand is elastic.
Example
Can you think of an example of setting a price?
A theatre finds its matinee demand is elastic and its Saturday-night demand inelastic, so it cuts matinee prices by £5 and raises Saturday prices by £5.
Test yourself
Can you name the four decisions an elasticity estimate helps to make?