Microeconomics With Sarbjeet: Elasticity and Revenue

The advent of 3D TV is showing the same trends as HD-TV in terms of demand and pricing patterns. The price range of 3D-TVs is between $1300 and $6000+ depending on the size of screen and other features associated with it. Analysts are predicting the revenue growth of 3D-TVs from US $13.2 billion to US $67 billion worldwide and shipments of 3D-TV’s set to rise from 50.8 million to 226 million by 2019.

The price elasticity of demand is used to see how consumer demand is sensitive to price change assuming ceteris paribus (other things being equal). Consumer demand is extremely sensitive to higher price elasticity, whereas lower price elasticity results in a consumer demand with low sensitivity. The price elasticity of demand is the ratio of percentage change in consumer demand to the percentage change in price. The average value of price and quantity is used to calculate the change in percentage instead of lower or higher value. High price elasticity results in consumers buying less. Consumers buy more when price elasticity is at a low level.

If we assume, the determinants of demand are ceteris paribus then the consumer demand for 3D-TVs will be sensitive to price changes. In a recent article, Mike Wheatley states that “auto-stereoscopic 3D, which is widely used on games consoles such as the Nintendo 3DS and does not require glasses, is some years away from becoming a reality in televisions due to the technology’s limitations in larger display sizes”. With the advancement of production techniques and advances in technology, the price of 3D-TVs will come down. Consequently, more people will buy 3d-TVs and sales will increase. In conclusion, the price elasticity of demand is elastic at higher price points and becomes inelastic at lower price ranges. The trends in graphs 1 and 2 make it evident that when prices are elastic, total revenue rises. When prices are inelastic, total revenue falls.

The following data illustrates the relationship between price elasticity of demand and total revenue.

The modified data is selected to show the points of elastic, unitary, and inelastic demand, although the data may not be as smooth as in the real world.