How to Increase Tee Times Sold at Your Golf Resort with Price Elasticity of Demand
How can you increase the number of tee times sold at your golf resort by 10%?
A staff economist has determined that the price elasticity of demand for tee times is -1.5. To reach the goal of a 10% increase in tee times sold, how much should you decrease the price of a tee time in percentage terms?
A) 15.5%
B) 20%
C) 8%
D) 6.67%
Answer:
The correct answer is 6.67%.
As the manager of a golf resort, increasing the number of tee times sold by 10% can lead to higher revenue and customer satisfaction. In order to achieve this goal, it is important to consider the price elasticity of demand for tee times, which in this case is -1.5.
Price elasticity of demand measures how sensitive the quantity demanded of a good is to changes in its price. A higher absolute value of the price elasticity indicates a more elastic demand, meaning that customers are more responsive to price changes.
In this scenario, with a price elasticity of demand of -1.5, a decrease in the price of a tee time by 6.67% would lead to a 10% increase in tee times sold. This indicates that demand for tee times is relatively elastic, and customers are likely to respond positively to a lower price.
By adjusting the pricing strategy effectively based on the price elasticity of demand, the golf resort can attract more customers, increase tee times sold, and ultimately improve its bottom line.