Final answer:
Tracy should not increase the price of her cupcakes as the demand is elastic; revenue would decrease. For the pharmaceutical company, price adjustment depends on demand elasticity: lower the price if elastic, raise it if inelastic. UPS/FedEx must consider fuel elasticity for operating costs, and bread's income elasticity determines if it's an inferior or normal good.
Step-by-step explanation:
If Tracy is considering raising her price from $2 to $2.50 for her gourmet cupcakes and the price elasticity of demand is 2, she would not increase her revenues because the demand is elastic. In the case of elasticity greater than 1, consumers are quite responsive to a price change, meaning that the percentage change in the quantity demanded is greater than the percentage change in price. Thus, increasing the price in this scenario would lead to a proportionally larger drop in quantity demanded, which would result in lower revenue.
In the pharmaceutical company example, if the elasticity of demand for the new hair-growth drug is 1.4 (elastic), it's advisable to lower the price to increase revenue. If the elasticity were 0.6 (inelastic), the company should raise the price to increase revenue. When elasticity is exactly 1 (unitary elasticity), changing the price does not affect revenue.
For companies like UPS or FedEx, understanding the gasoline price elasticity of supply is important as it affects their costs. When elasticity is high, gasoline supply can quickly respond to price changes, leading to smaller price fluctuations. Lower elasticity would mean that price changes result in bigger changes to supply, potentially impacting the cost of running their fleets.
The income elasticity of bread consumption can be calculated by the formula Income Elasticity of Demand = Percentage change in quantity demanded / Percentage change in income. Based on the provided figures, if the income elasticity is negative, it indicates that bread is an inferior good. If it's positive, bread is a normal good, but less than 1 indicates it's a necessity, and more than 1 indicates it's a luxury.