Suppose that the price elasticity of demand for an ice cream cone is 1.9. If the local ice cream shop owner wants to increase total revenue, what would you recommend she do? | Homework.Study.com (2024)

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Suppose that the price elasticity of demand for an ice cream cone is 1.9. If the local ice cream shop owner wants to increase total revenue, what would you recommend she do? | Homework.Study.com? ›

The price elasticity of demand is (in absolute terms) 1.9, which is larger than 1. In this case, demand for ice cream is elastic. Therefore, the shop should reduce price to increase revenue.

Demands for ice milk or sherbet and frozen novelty ice cream were notably elastic, with own-price elasticities of −1.16 and −2.00, respectively, which meant that a 1% change in the price of these products would have a change greater than 1% in quantity demanded.

Answer and Explanation:

When the price of ice cream increases, the consumption of ice cream decreases. With the fall in consumption of ice cream, the consumption of ice cream cones also decreases.

Answer & Explanation. When the price of ice cream increases, the total revenue from ice cream decreases. This is because the demand for ice cream is elastic.

If the price elasticity of demand is greater than 1, it is deemed elastic. That is, demand for the product is sensitive to an increase in price. A price increase for a fancy cut of steak, for example, may make many customers choose hamburger instead.

Answer and Explanation:

An increase in the price of substitutes for ice cream increases its demand.

In this example, we find an elasticity of 1.5, which is greater than 1. We know from earlier that this indicates that the demand for the smoothies is elastic: the percentage change in the quantity demanded is greater than the percentage change in price.

Notice that as the price of the cones increases, the quantity of ice cream cones demanded decreases. This means quantity demanded is negatively related to price-which means they have an inverse relationship. Economists refer to this relationship as the law of demand.

For example, if consumer tastes change or people perceive ice cream as a seasonal treat, then demand will decrease.

Demand for Ice Cream

The quantity demanded depends on: Price–the higher the price, the less you buy. Income–for normal goods, the higher your income, the more you buy. For inferior goods, the higher your income, the less you buy.

Is ice cream price elastic or inelastic? ›

Ice Cream: The demand for ice cream is generally elastic. Ice cream is considered a luxury or discretionary item, meaning that consumers can easily reduce their consumption or switch to alternative desserts if the price increases.

Hot weather increases the demand for ice cream and drives up the price, the quantity of ice cream that the firms supply rises, even though the supply curve remains the same. People's preferences for ice cream change during hot weather, which impacts the demand curve.

Answer and Explanation:

A decrease in the price of ice cream will not cause a change in demand. A decrease in demand will simply cause the demand to move to a new point on the same curve as opposed to the demand curve shifting.

A value of one means that your product is unit elastic and changes in your price reflect an equal change in supply or demand. A value of >1 means that your product is elastic and changes in your price will cause a greater than proportional change in supply or demand.

If elasticity = 0, then it is said to be 'perfectly' inelastic, meaning its demand will remain unchanged at any price.

Elasticity is a measure of responsiveness, calculated by the percentage change in one variable divided by the percentage change in another.

Ice Cream: The demand for ice cream is generally elastic. Ice cream is considered a luxury or discretionary item, meaning that consumers can easily reduce their consumption or switch to alternative desserts if the price increases.

The supply curve for ice cream will shift from S1 to S2, resulting in a high equilibrium price P2, since the supply is elastic to price changes. But the quantity demanded will have a minimal change from Q1 to Q2 since the demand of ice cream is perfectly in elastic.

Own-price elasticities for milk, cheese, cottage cheese, butter, margarine, and ice cream were all inelastic under the censored demand estimation, but were elastic for ice cream, cottage cheese, and butter.

In this case, demand for ice cream is elastic. Therefore, the shop should reduce price to increase revenue.