At the end of this chapter, learners will be able to:
- Discuss the Price Elasticity of Demand and Its Measurement
- Explain the Determinants of the Price Elasticity of Demand
- Analyze the Relationship between Price Elasticity of Demand and Total Revenue
- Elaborate other Demand Elasticities
- Describe elasticity of Supply
In early 2011, Netflix consumers paid about $10 a month for a package consisting of streaming video and DVD rentals. In July 2011, the company announced a packaging change. Customers wishing to retain both streaming video and DVD rental would be charged $15.98 per month – a price increase of about 60%. In 2014, Netflix also raised its streaming video subscription price from $7.99 to $8.99 per month for new U.S. customers. The company also changed its policy of 4K streaming content from $9.00 to $12.00 per month that year.
How did customers react? Did they abandon Netflix? How much will this price change affect the demand for Netflix’s products? The answers to those questions will be explored in this chapter with concept economists call elasticity.