Demand and Total Revenue Graphs

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Graph the demand and total revenue curves for the Northern part of Canada

Graph #1

Graph #2

Graph the demand curve for the Southern part of Canada

Graph #3

Explain how a declining price can have three different impacts on total revenue

In graph #1, snow shovels are seen to have an elastic demand. Their demand increases with a decrease in the price per unit. However, the elasticity demand produces inconsistent effects on the total revenue. First, as the price declines from $26 to $18, it creates a significant increase in demand and total revenues. As the prices drop for $26 to $22, the percentage change is 15.4%. In the same change, the demand raises from 3 to 6 million shovels, creating a 100% change. The change in demand is greater than the difference in price. The elasticity is -6.5. Such a high elasticity allows the company to generate more revenue. The gradual slope shows this in the revenue curve as the demand raises from 3 to 9 million.

Secondly, in graph #2, the total revenue curve relatively flattens as demanded quantity increases from 9 to 15 million units. The percentage change in the price at this point ($18 to $10) is 44%. The percentage change of the demand is 66% leading to the elasticity of -1.5. The difference created by price decline is almost equal to the change of the demand (Agarwal, 2020). This means that, despite the decrease in shovel prices and increased quantity demand, the change cannot significantly raise total revenues. Therefore, no significant changes are felt in total revenues.

Lastly, as the prices decline from $10 to $2, they cause a significant drop in the total revenue from $150 million to $42 million. At this point, the percentage of price decline is 80%, the demand change is 40%, resulting in the elasticity of -0.5 (inelastic). The percentage change in the demand is lower than that of the price (Agarwal, 2020). As such, revenues drop. This is shown by the rapid slope in graph #2, where the quantity demanded increases from 15 to 21 million snow shovels.

Explain why the demand curve in B has a different slope when compared to that of A

The slope of the demand curve in part A is slightly steeper compared to that of B. This shows that snow shovels are more elastic in Northern Canada compared to the Southern side. One reason to explain this difference is the availability of substitutes for the product in Northern Canada compared to the Southern part. The Northern part of Canada is the coldest and snowiest region in the country. As such, snow removal equipment, including shovels, are more marketable in the area. This has attracted significant competition leading to the availability of more substitutes in the market. As such, a change in the product price is likely to impact the demand significantly (Agarwal, 2020). By reducing the cost of snow shovels, The Home Depot, differentiates its product from the rest, hence, attract a greater demand. In the South, perhaps due to a relatively favorable climate, snow shovels are not as marketable. There are no many substitutes for the product, and thus change in the price is unlikely to affect demand compared to the Northern side.