# Thread: price elasticity of demand of -0.5

1. ## price elasticity of demand of -0.5

If the price elasticity of a product is -0.5, is it a good idea to cut the price?

2. Originally Posted by jhayes
If the price elasticity of a product is -0.5, is it a good idea to cut the price?
Look at the effect on revenue $PX.$

$\frac{d(PX)}{dP} = \frac{dP}{dP}X + P\frac{dX}{dP} = X(1 + \frac{PdX}{XdP}) = X(1 -.5) = .5X > 0.$

So revenue moves in the same direction as price. Cut price, cut revenue. Doesn't sound good like a good idea.