| Course | GB540 Economics for Global Decision Makers |
|---|---|
| Unit | Unit 2 |
| Paper type | Elasticity analysis |
| Length | About 850 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for GB540 Unit 2
About Minus 1.91, and the Cut Did Not Pay: A Unit 2 Elasticity Analysis for an Electric Outboard
[Student Name]
Purdue University Global
GB540: Economics for Global Decision Makers
Unit 2 Elasticity Analysis
[Instructor Name]
[Date]
Ruddiman Marine, its prices and every sales figure are composite and illustrative; the economics sources cited are real.
The Question
Ruddiman Marine's Australian distributor ran a one-season price promotion in two states and wants to know two things: how strongly buyers responded, and whether the promotion should be repeated nationally. The first is an elasticity. The second depends on what the extra motors earned.
Calculation 1: Own-Price Elasticity in Australia
Building the counterfactual. Sales in the two promotion states rose from 212 motors to 252. But sales in the other states, where price stayed at AUD 7,400, grew 4 percent over the same season, from rising demand rather than price. Without the promotion, the two states would likely have sold about 212 times 1.04, or 220.5 motors. The price effect is measured against that figure, because a before-and-after pair from a growing market mixes a demand shift with a move along the curve (Working, 1927).
The midpoint calculation. The quantity change is 252 minus 220.5, or 31.5 motors, divided by the midpoint of 236.25, which is 13.34 percent. The price change is minus 500 divided by the midpoint of 7,150, which is minus 6.99 percent. The elasticity is 13.34 divided by minus 6.99, or about minus 1.91.
The uncorrected figure. Measured from 212 to 252 without the counterfactual, the quantity change is 17.24 percent and the elasticity about minus 2.47. That figure is shown and rejected, because it credits the price cut with growth the other states had without it.
Is minus 1.91 plausible? Bijmolt et al. (2005), in a meta-analysis of 1,851 price elasticities, report an average near minus 2.62 for brand-level demand, and Tellis (1988) reported an earlier average near minus 1.76. An estimate of minus 1.91 for a branded durable good sits inside that range.
Calculation 2: Cross-Price Elasticity in Norway
In Norway, the price of the leading comparable gasoline outboard rose from NOK 42,000 to NOK 45,800 over one season while Ruddiman's price held. Ruddiman's Norwegian sales rose from 150 motors to 170 over the same months, with no other change in its marketing.
The quantity change is 20 divided by 160, or 12.5 percent. The rival's price change is 3,800 divided by 43,900, or 8.66 percent. The cross-price elasticity is about 1.44. The positive sign confirms that buyers treat gasoline and electric outboards as substitutes, and the size says the gasoline price matters a good deal to electric sales. Because Norway had no comparison region, this estimate is less secure than the Australian one and may include some growth in demand.
The Decision Table
Revenue. Without the promotion, the two states would have produced about 220.5 motors at AUD 7,400, or AUD 1.63 million. With it, they produced 252 motors at AUD 6,900, or AUD 1.74 million. Revenue rose about 6.6 percent, as expected when demand is elastic.
Contribution. At a landed cost of AUD 4,885 per motor, each motor contributed AUD 2,515 at the full price and AUD 2,015 at the promotional price. Without the promotion, contribution would have been about AUD 554,500. With it, contribution was AUD 507,800. Contribution fell about 8.4 percent.
Elastic demand means a price cut raises revenue, but whether it pays depends on the margin, and here the lost margin on every motor outweighed the extra motors sold.
Why Revenue and Contribution Disagree
The cut sold 31.5 extra motors, each contributing AUD 2,015, or about AUD 63,500. But it gave up AUD 500 on each of the 220.5 motors that would have sold anyway, about AUD 110,200. The loss on existing sales exceeded the gain on new ones. For a cut to pay at this margin, demand would need to be far more elastic than minus 1.91.
Limits of the Two Estimates
The Australian estimate rests on one season and two states. If buyers in those states bought earlier than they otherwise would have, pulling next season's sales forward, the promotion's true effect is smaller than minus 1.91 suggests, and the case against it is stronger. The comparison states also differ from the promotion states in climate and boating season, so the 4 percent growth may not be exactly what the promotion states would have seen. The Norwegian cross-price estimate has no comparison region at all, so any growth in Norwegian demand over those months is counted as a response to the gasoline price. Both estimates should be treated as ranges rather than points: roughly minus 1.6 to minus 2.2 for the Australian figure if the counterfactual growth were 2 to 6 percent, and an upper bound for the Norwegian one.
Recommendation
Do not repeat the promotion nationally, since at the current landed cost no plausible elasticity in the range above would make a AUD 500 cut pay. Use the minus 1.91 estimate in the Unit 6 pricing work, where it suggests the Australian price could rise rather than fall.
References
Bijmolt, T. H. A., van Heerde, H. J., & Pieters, R. G. M. (2005). New empirical generalizations on the determinants of price elasticity. Journal of Marketing Research, 42(2), 141-156. https://doi.org/10.1509/jmkr.42.2.141.62296
Tellis, G. J. (1988). The price elasticity of selective demand: A meta-analysis of econometric models of sales. Journal of Marketing Research, 25(4), 331-341. https://doi.org/10.1177/002224378802500401
Working, E. J. (1927). What do statistical "demand curves" show? The Quarterly Journal of Economics, 41(2), 212-235. https://doi.org/10.2307/1883501
GB540 Unit 2 instructions, in plain terms
GB540's second unit asks you to calculate and interpret price elasticities for a product and use them in a decision. State the question the elasticity will answer. Calculate an own-price elasticity using the midpoint method, showing each step. If the market was changing for other reasons, build a counterfactual from a comparison group and measure against it, and show the uncorrected figure for contrast. Compare your estimate with published elasticity research. Calculate a cross-price or income elasticity and interpret its sign and size. Then build a decision table comparing revenue and contribution, explain why they disagree if they do, and state the limits of your estimates. Close with a recommendation. About four pages with two worked calculations and one decision table is a common format for this unit in the course.
How this GB540 Unit 2 example is built
The sample states the distributor's two questions. It builds a counterfactual of 220.5 motors from 4 percent growth in other states, with a margin note on why, and cites Working on mixed shifts. The midpoint calculation gives minus 1.91 against an uncorrected minus 2.47, and the estimate is compared with Bijmolt and colleagues and Tellis. A Norwegian cross-price elasticity of 1.44 with gasoline outboards follows, flagged as less secure. The decision table shows revenue up and contribution down, the highlighted sentence explains why, and a section splits the change into gains on new sales and losses on existing ones. Limits give a range of minus 1.6 to minus 2.2, and the recommendation rejects a national promotion.
Where the points sit in the GB540 Unit 2 rubric
The GB540 elasticity analysis is graded on correct calculation and sound use of the results. Midpoint calculations should be shown step by step. Building a counterfactual where the market was growing earns substantial credit, since raw changes overstate the price effect. Comparing the estimate with published research shows judgment about plausibility. Cross-price or income elasticities should be interpreted by sign and size. The decision table is weighted heavily: revenue and contribution must both appear, and the analysis should explain why they disagree. Splitting gains and losses shows command of the logic. Stating limits as a range rather than a point shows care. The recommendation should follow from contribution, not revenue, with sources cited.
GB540 Unit 2 help: mistakes that cost points
Many GB540 elasticity analyses compute a raw before-and-after elasticity in a growing market and present it as the price effect. Others stop at revenue and recommend a price cut because demand is elastic, without checking margin. Students often report a cross-price elasticity without saying what its sign means. Published benchmarks are rarely used to check plausibility. Limits are listed without showing how they change the estimate. Build a counterfactual, show the midpoint steps, compare with research, interpret every sign, set revenue beside contribution, explain the gap and give your estimate as a range. Bring your price and sales data, and our team can help with the calculations.
Get a GB540 Unit 2 example written to your instructions
Hand over the Unit 2 problems or scenario, whatever prices and volumes it supplies, and the grading rubric. Every elasticity in the returned sample is worked by the midpoint method, signs kept where they matter, and the pricing call rests on contribution rather than revenue. Delivery is 24-48h, and there is no fee for a first sample. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GB540 Unit 2 questions, answered
Should the recommendation follow revenue or profit?
Profit, or contribution after variable costs when fixed costs do not change. Revenue ignores what each extra unit costs to produce and deliver. Elastic demand means a price cut raises revenue, but if margins are thin the extra units can cost more than they bring in. Where the data permit, report both and base the recommendation on contribution.
What if my data have no control group?
Then say so and treat the estimate with caution. Look for anything that could have moved sales at the same time, such as season, a competitor's move or a change in income. If your prompt supplies only two price-quantity pairs, compute the elasticity as asked and add a sentence noting what else might explain the change.
Why keep the sign on a cross-price elasticity?
Because the sign is the finding. A positive cross-price elasticity means the goods are substitutes, so a rival's price rise helps you; a negative one means complements, so it hurts you. Many texts drop the sign on own-price elasticity by convention, but dropping it on cross-price erases the answer the problem was asking for.
Where can I find a free GB540 Unit 2 sample paper?
A complete GB540 Unit 2 elasticity analysis is on this page, measuring an Australian price promotion on an electric outboard against a counterfactual and showing it lowered contribution.
Why can elastic demand make a price cut unprofitable?
A cut raises revenue when demand is elastic, but every motor that would have sold anyway now earns less. If the margin is thin, those losses can exceed the gain on extra sales.