ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Elasticity of demand can affect a firms total revenues.
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Elasticity of demand can affect consumers.
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Elasticity of demand can affect the economy.
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None of the above
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Detailed explanation-1: -Elasticity is an important economic measure, particularly for the sellers of goods or services, because it indicates how much of a good or service buyers consume when the price changes. When a product is elastic, a change in price quickly results in a change in the quantity demanded.
Detailed explanation-2: -The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. If the quotient is greater than or equal to one, the demand is considered to be elastic. If the value is less than one, demand is considered inelastic.
Detailed explanation-3: -a) If demand is price inelastic, then increasing price will decrease revenue.
Detailed explanation-4: -Inelastic goods are more likely to continue producing revenue during down markets or recessions as demand for their goods won’t change. Companies that produce goods with elastic demand can increase revenue by lowering price. Firms that produce goods with inelastic demand can increase revenue by raising their price.