Elasticity and Total Revenue: Context Rich Problem
This material is replicated on a number of sites as part of the SERC Pedagogic Service Project
This activity involves a single scenario-based problem. In the problem students will need to determine if demand is likely to be elastic or inelastic. Then they will need to link elasticity to how a price change affects total revenue.
Students will apply the concepts of the elasticity of demand in a realistic setting.
Context for Use
This problem is suitable for a principles of microeconomics course. It can be used in any size course. The problem can be used as an in class activity, as a homework assignment or on an exam. The activity will take about 5-10 minutes if done in class.
Description and Teaching Materials
You have been hired as a summer intern at Valley Fair. The amusement park is considering increasing their prices in order to increase their revenue. You have been assigned to give a report on the likelihood of the success of this plan. Write a short report in which you identify if revenue is likely to increase or decrease and explain why you have come to this conclusion.
The text of the problem can be downloaded below:
Elasticity CRP (Microsoft Word 2007 (.docx) 10kB Mar14 12)
Teaching Notes and Tips
This problem can be used to introduce the concept of elasticity of demand or to assess students' understanding of elasticity of demand. If you want to use this problem to introduce the concept of elasticity of demand, the problem should be used to generate discussion on the topic. A think-pair-share exercise is a good tool to start the discussion.
The purpose of the assessment will determine whether or not you need a rubric. If the problem will be graded, it may be helpful to give the students a rubric such as:
- Grade=A: All economic reasoning in the answer is correct. All relevant economic terms are included.
- Grade=B: Economic reasoning in the answer is correct, but some relevant economic terms are missing.
- Grade=C: Contains significant errors in the economic reasoning. Many relevant economic terms are missing or used incorrectly.
- Grade=D: Very little of the economic reasoning is correct and relevant to the problem. Nearly all relevant economic terms are missing or used incorrectly.
- Grade=F: None of the economic content is relevant to the question.