* You need information about ebook demand. The price elasticity of demand for paper books only tells you how the quantity demanded of paper books changes with a price change. You need to know how ebook demand changes as well to understand the overall impact on your revenue.
* You need the price elasticity of demand for ebooks. Knowing how the price of ebooks affects the quantity demanded is essential. If the price elasticity of demand for ebooks is high (meaning consumers are very sensitive to price changes), a price decrease for paper books might lead to a significant shift in demand from ebooks to paper books, potentially offsetting any revenue loss from the price decrease.
* Cross-price elasticity of demand is crucial. This tells you how the quantity demanded of one good (e.g., paper books) changes in response to a price change in another good (e.g., ebooks). If the cross-price elasticity is high, a price decrease in paper books could significantly decrease ebook sales, impacting your overall revenue.
* You need information on the price of ebooks. If the price of ebooks is already very low, a price decrease in paper books might not lead to significant shifts in demand. If the price of ebooks is high, then the price decrease in paper books could be more impactful.
To calculate the impact on overall revenue, you would need the following:
1. Own price elasticity of demand for both paper books and ebooks.
2. Cross-price elasticity of demand between paper books and ebooks.
3. The current prices of both paper books and ebooks.
4. The current sales volumes of both paper books and ebooks.
Here's how you would use this information:
1. Calculate the change in quantity demanded for paper books: A 4% decrease in the price of paper books, with an elasticity of -2, would lead to an 8% increase in paper book sales (4% price decrease * -2 elasticity = 8% quantity increase).
2. Calculate the change in quantity demanded for ebooks: This depends on the cross-price elasticity of demand. If the cross-price elasticity is positive, ebook sales would decrease. If it's negative, ebook sales would increase.
3. Calculate the change in revenue for each product: Multiply the change in quantity demanded by the original price to find the change in revenue for each product.
4. Sum the changes in revenue for both paper books and ebooks: This will give you the overall change in revenue for both book types.
Example:
Let's assume that the cross-price elasticity of demand between paper books and ebooks is +1. This means that a 4% decrease in the price of paper books will lead to a 4% decrease in the quantity of ebooks demanded.
To assess the overall impact on revenue, you'll need more information about the initial prices and sales volumes of both books and ebooks.