Below are two graphs that represents items of different elasticity. As Netflix finds the need to increase their price, the question that is important to ask is whether or not their product and service is inelastic enough. Unless there is an increase in demand, as proposed on the page regarding supply and demand, the elasticity of their service is the only concept in the way of raising the price of membership. It is important to realize that when raising the price of a commodity or service, the demand will inevitably go down, (unless the product is perfectly inelastic) the level of elasticity determines by how much that demand will go down.
Raising the Price of an Inelastic Product:
If Netflix services are in fact inelastic and the prices are raised, the quantity of memberships will only go down a small amount. |
Raising the Price of an Elastic Product:
If Netflix services are elastic and the prices are raised, the quantity of memberships will go down a significant amount. |