In 2016, Netflix increased prices for their U.S. subscribers from $7.99 to $9.99 per month.1 Following the price increase, the rate of subscription growth decreased significantly, from 1.56 (in the fourth quarter of 2015, before implementing the price increase) to 0.40 (in the third quarter of 2016, after implementing the price increase). In addition, the stock price of the company fell by about 16% (price dropped in July 2016, after releasing the second quarter earnings, to $85.84 per share, from $102.23 on March 31, 2016). How much is the price elasticity of demand for Netflix subscription in this case, using the midpoint method when calculating the percentage change.
In 2016, Netflix increased prices for their U.S. subscribers from $7.99 to $9.99 per month.1 Following the price increase, the rate of subscription growth decreased significantly, from 1.56 (in the fourth quarter of 2015, before implementing the price increase) to 0.40 (in the third quarter of 2016, after implementing the price increase). In addition, the stock price of the company fell by about 16% (price dropped in July 2016, after releasing the second quarter earnings, to $85.84 per share, from $102.23 on March 31, 2016). How much is the price elasticity of demand for Netflix subscription in this case, using the midpoint method when calculating the percentage change.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In 2016, Netflix increased prices for their U.S. subscribers from $7.99 to $9.99 per month.1
Following the
quarter of 2016, after implementing the price increase). In addition, the stock price of the
company fell by about 16% (price dropped in July 2016, after releasing the second quarter
earnings, to $85.84 per share, from $102.23 on March 31, 2016). How much is the price
elasticity of demand for Netflix subscription in this case, using the midpoint method when
calculating the percentage change.
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