Question

You are the curator of a butterfly sanctuary. The sanctuary is running low on funds, so you decide to increase revenue. What options do you have to consider? Should you raise or lower the price of admission? Explain your reasoning in terms of demand and elasticity. please keep in mind this is a macroeconomics class and please make sure its no less then two paragraphs and relates to macroeconomics thank you! I Will rate well!

Answer 1

Since the sanctuary is running low on funds, it can increase revenue by either increasing the price of the tickets, or by reducing the price. Both options can help in increasing the revenue, based on the elasticity of demand of people to go to the sanctuary. Increasing the price of the tickets can help in increasing the revenue as total revenue is calculated by multiplying the price of the product with the quantity. However, for an increase in price to increase the revenue, the elasticity of demand must be inelastic. It means that the change in price should not affect the quantity. So, if the demand is inelastic, then even if the price increases, then also the quantity will not be affected, and the revenue will increase. Consider another case where the price is falling. Law of demand states that there is an inverse relationship between the price of the good and the quantity. Therefore, if the price of the product falls, then the quantity demanded increases. For revenue to increase due to this change, the elasticity of demand should be elastic, meaning that change in price should lead to the higher changes in the demand for the tickets, If this is the case, the when the price falls, quantity demanded of tickets will increase much higher than the fall in price and the revenue increases.