Price Elasticity of Demand for Goods Not Obeying the Law of Demand

K4t

Would I be right in saying that for these goods (giffen, snob and speculative) that if the goods are elastic or inelastic, in both circumstances you would raise price by as much as possible in order to increase total revenue?

Please let me know if this is correct. Thanks.

Time Magazine

K4t wrote: »

Would I be right in saying that for these goods (giffen, snob and speculative) that if the goods are elastic or inelastic, in both circumstances you would raise price by as much as possible in order to increase total revenue?

Please let me know if this is correct. Thanks.

Sort of.

You shouldn't raise price as much as possible because doing that would mean setting the price as €100bn per item, and I don't think you'll get much revenue then . So the point is that at some point, it's not worth your while raising price any higher. However if a seller wants to maximise revenue they should raise/lower price (if he or she can) until elasticity = 1. Otherwise they're not maximising revenue.

K4t

The Economist wrote: »

Sort of.

You shouldn't raise price as much as possible because doing that would mean setting the price as €100bn per item, and I don't think you'll get much revenue then . So the point is that at some point, it's not worth your while raising price any higher. However if a seller wants to maximise revenue they should raise/lower price (if he or she can) until elasticity = 1. Otherwise they're not maximising revenue.

Ya I know what you mean!

But my point really is that for (giffen, snob, speculative) goods, you raise price to maximise revenue if the goods are either elastic or inelastic

whereas

for normal goods, you raise price if the good is inelastic to maximise revenue and lower price if the good is elastic to maximise revenue.

That is correct ^ Yes?

I was getting confused by that. I just thought they were direct opposites.

Time Magazine

K4t wrote: »

But my point really is that for (giffen, snob, speculative) goods, you raise price to maximise revenue if the goods are either elastic or inelastic

This question is confusing.

With a Giffen, as price goes up quantity goes up. But that only lasts so long. Nobody buys rice at €100/kg. So yes, you should increase the price of Giffens while they remain Giffens.

With a snob, as the price goes up quantity goes up. But that only lasts so long. Nobody buys a boat for €100bn. So yes, you should increase the price of snob goods while they remain so.

As far as I can figure out, the fact that the law of demand doesn't hold here means whether these are elastic or inelastic doesn't matter. When the law does hold, then whether increase or decrease price depends on the elasticity.

K4t

The Economist wrote: »

This question is confusing.

With a Giffen, as price goes up quantity goes up. But that only lasts so long. Nobody buys rice at €100/kg. So yes, you should increase the price of Giffens while they remain Giffens.

With a snob, as the price goes up quantity goes up. But that only lasts so long. Nobody buys a boat for €100bn. So yes, you should increase the price of snob goods while they remain so.

Obviously I mean raising the price to the highest level whereby people would still buy the good!

The Economist wrote: »

As far as I can figure out, the fact that the law of demand doesn't hold here means whether these are elastic or inelastic doesn't matter. When the law does hold, then whether increase or decrease price depends on the elasticity.

So are you saying that elasticity doesn't affect goods which don't obey the law of demand?

Time Magazine

K4t wrote: »

So are you saying that elasticity doesn't affect goods which don't obey the law of demand?

Well if [latex]Q_D[/latex] goes up as [latex]P[/latex] goes up, then revenue has to go up.