You own a small store. Your cashier thinks you should raise prices to increase your total revenue and your customer thinks you should lower prices to increase your total revenue. The cashier thinks the price elasticity of demand is ________ and the customer believes the price elasticity of demand is ________.
A) elastic; inelastic
B) unit elastic; elastic
C) inelastic; inelastic
D) elastic; elastic
E) inelastic; elastic

Question

Quizplus · Accepted Answer

The cashier's belief that raising prices will increase total revenue suggests that they believe the demand for the store's products is relatively inelastic, meaning that customers are willing to pay higher prices without significantly reducing their purchases. On the other hand, the customer's belief that lowering prices will increase total revenue suggests that they believe the demand for the store's products is relatively elastic, meaning that customers are highly sensitive to price changes and will buy significantly more if prices are lowered. Therefore, the answer is E, as the cashier thinks the price elasticity of demand is inelastic and the customer believes it is elastic. The store may need to explore different pricing strategies and conduct market research to determine the true price elasticity of demand for its products.

You Own a Small Store