Question

1. Following one of the exercises from the Intermediate Varian book done before, what is the relationship between price-elasticity and profit maximization? Why may this be important in the sports industries?

Answer 1

In order to know about the price ela sticity of demand, it is important for the demand to stay in a fixed position. This is so because; it will be the change in supply which will determine the new equilibrium price and quantity which thus will depend only on the slope of the demand curve.

If the demand curve too shifts with the change in supply, it will be difficult to judge about the differences in price elasticity. For example, if the demand curve shifts in the same proportion as supply curve, then only a change in quantity will be observed with no change in price. With no observed change in price, the elasticity of demand cannot be obtained.

Think of a situation for a juice market where a decrease in the supply will lead to an excess demand for juices at the existing price level. As a result with unsatisfied demand, people will move out from the market and thus leading to a fall in the demand for juices