Unit Elastic: Definition & Example

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  • 0:00 Cost vs. Demand
  • 1:10 Unit Elastic: Definition
  • 1:55 Revenue & Options
  • 2:40 Lesson Summary
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Lesson Transcript
Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

What would you do if the price of an item you buy all the time started to go up? In this lesson, we will use a hypothetical business scenario to learn about unit elastic and the relationship between price and demand.

Cost Vs. Demand

Say hello to Sandy! Sandy owns her own business: Cookies, Cakes, and More. All Sandy's products are prepared and baked right on the premises and range from traditional chocolate chip cookies to her famous oatmeal raisin cookies. Sandy also specializes in custom birthday and wedding cakes.

Sandy has always earned a pretty good living from her cookie and cake business, but lately the price of raisins has risen drastically. Since Sandy is known for her oatmeal raisin cookies, she just can't stop making them to reduce her costs. Instead, Sandy decides to raise the price of her famous cookies gradually in the hopes that her customers will continue to purchase them.

For example, Sandy starts by raising the price of her oatmeal raisin cookies from $2.00 to $2.05. The next week she raises the price to $2.10. Sandy continues to raise the price of the cookies on a weekly basis until they cost $2.50. Although Sandy's oatmeal raisin cookies continue to sell, she notices that each weekly increase in the price of the cookies is accompanied by a proportional decrease in the number of customers who stop buying the cookies. In business, this is known as the unit elastic.

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