ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Describe your demand for a product if you buy the same amount of it or just a small amount less after a large price increase. Q. How does elasticity affect potential revenue for a firm? If demand for a good is inelastic, lowering the price could raise revenue.

Detailed explanation-2: -Inelastic demand is when a buyer’s demand for a product does not change as much as its change in price. When price increases by 20% and demand decreases by only 1%, demand is said to be inelastic.

Detailed explanation-3: -Price inelasticity usually occurs with products that have fewer close substitutes, which means fewer options for customers. Such goods tend to be necessities that people can’t do without and therefore their needs stay the same.

Detailed explanation-4: -a) If demand is price inelastic, then increasing price will decrease revenue.

Detailed explanation-5: -The most common goods with inelastic demand are utilities, prescription drugs, and tobacco products. In general, necessities and medical treatments tend to be inelastic, while luxury goods tend to be most elastic.