All the same.....again and again....Homework.... about stamps..

a) Define price elasicity of demand- it is when how demand response to a change in price of a product.


b) Using the information in the article, calculate the PED for first and second class stamps.
formula= % change in Q.D./%change in price
First class stamps: was 39 p.
now 42 p.

42-39=3p +3p=+ 7.69% PED=-10% (I'm not sure about that information,if I'm wrong-sorry)

Anyway I'll calculate..

-10=% change in Q.D./ 7.69 (7.69*{-10})=-76.9
D= -76.9
Second class stamps:
was 30 p.
now 32 p. + 2p=+6.6%
-10=% change in Q.D./ 6.6% (6.6*{-10})=-66
D.=-66

c) What do the 2 numbers you have calculated tell you about the demand for the 2 products?(According to the calculations I've made, I'll explain what does it mean,but still thinking that (PED=-10%) is not right,so maybye results are wrong too,but anyway..)
It means that if price for stamps(first class) will raise,so people will stop bying them at all(anyway demand will fall a lot).If price for second class stamps will raise for 2 p, so demand will also decrease,but not so much as in the first class...

d) Why is demand for these 2 products as you have described? (Hint: Look at the factors that influence PED)
I didn't understood the question,despite I looked at factors that influence PED(tastes changed,different needs, etc.)

e) What advice would you give Royal mail about their pricing structure as a result of your calculations?
I think Royal male should increase prices steadily(not rapidly),and then look at the changes in demand, how people will react for that changes,and futher decide what to do again.
I also can suggest to do like that: the more far away you are sendind your letter,the more price for sending. maybye set ("formula"=money/per mile).What else...ermm...I don't know...(my brain is tired)...:-/

f) Why is ceteris paribus important when we are delaing with elasticity?
I think because if they will raise prices for one class it will be some kind of "dishonest"..Moreover if price for first class will raise and for second-not,so there will be a "big" gap in prices between first and the second class. people might buy mostly(or try to buy) the second class stamps,demand for second class may also decrease.

I don't know if I'm right or not,but anyway,I tried to explain that..:-)