Criterial: Explain, with examples, the difference between elastic and inelastic demand.

Question : Topshop is what we call a strong brand.It is famous for its 'highfashion'styles, wide celebrity interest and... very nice dresses.Here is a 'model' table of the demand quantity and price of this current and popular Topshop shiftdress:

Popular Topshop shift dress:

Price Quantity of Demand

46 1,000

66 800

80 500

The first row translates to 'When the price of this dress is 46, 1,000 people will purchase it.

a.If the current price of this dress is 46, calculate the price elasticity if it went up to 66 in the weeks before Christmas. Is this dress elastic or inelastic?

b.Explain the factors that may cause the Demand for a product to be Price Elastic or Inelastic.

C.Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug.

(i) If the elasticity of demand for your company's product at the current price is1.4, would you advise the company to raise the price, lower the price, or to keep the price the same?

(ii) What if the elasticity were0.6?, and What if it were 1? Explain your answer stating the relationship between Price Elasticity of demand and Revenue and Inelasticity and Revenue.