Analyst: low elasticity / low price sensitivity: people won't react to the increase in price by not buying it, so revenue will increase.
Publisher: high elasticity / high price sensitivity: people will react strongly to the price hike, so the gain in revenue from increasing price will be offset by the drop in revenue from fewer sales.
1. In an article about the financial problems of USA Today, Newsweek reported that the paper was losing about $20 million a year. A Wall Street analyst said that the paper should raise its price from 50 cents to 75 cents, which he estimated would bring in an additional $65 million a year. The paper’s publisher rejected the idea, saying that circulation could drop sharply after a price increase, citing the Wall Street Journal’s experience after it increased its price to 75 cents. What implicit assumptions are the publisher and the analyst making about price elasticity?
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