Answer Happy

Elasticity in the real world—sort of. The managers of a
scholarly journal that I edit were thinking of raising the
subscription prices. We used to charge individuals $32 for four
issues per year and libraries $52 for the same. The managers
proposed raising the prices to $45 and $75, respectively. My
feeling was that these increases were too small, especially since
the prices of substitutes (scholarly journals of a quality similar
to ours) were much higher. I suggested that we charge $50 and $85,
respectively. I believed that was more sensible, since the demand
is quite inelastic over this price range, so with a larger price
increase our total revenue would rise further. Apparently, the
managers agreed, and we raised our prices by the larger amount.
Next year our revenue rose, suggesting that my guess about the
elasticity of demand was correct.
1.Why do you think the journal charges different prices to
libraries?
2.Do individuals have a higher or lower elasticity of demand
than libraries? Explain.