Tuesday, February 11, 2014

Inelastic Demand for Alcohol

Bloomberg reports that alcohol producers have increased prices and quantity sold has not changed much, while alcohol producers revenues are increasing.  Why - because consumers demand is price inelastic.  As demonstrated in class, when consumer demand is price inelastic (a given percentage change in price leads to a less than proportional change in the amount demanded), then for alcohol firms, an increase in price will reduce quantity demanded (such as mentioned for InBev in the article linked in above), that increase in price will lead to an increase in sales revenue - which I call the total revenue test in Prin. of Microeconomics.

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