ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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To monitor the rate of price inflation
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to calculate changes in disposable incomes
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to estimate the effects of changes in production costs
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to forecast the impact on revenues of different pricing strategies
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Detailed explanation-1: -Price elasticity of demand is used to measure the relationship between price and demand, and how changes to one will affect the other. All products will have different responses in consumer demand to price changes. Therefore, it’s critical to understand those differences when making important pricing decisions.
Detailed explanation-2: -Elasticity is an important economic measure, particularly for sellers of goods or services, because the reflects how much of a good or service buyers will consume when the price increases or decreases. Products or services that are elastic are either unnecessary or can be easily replaced with a substitute.
Detailed explanation-3: -By using the concept of price elasticity of demand, the business firms can determine whether a decline in price is better or a rise in price is better to increase sales, total revenue, and the profitability of the business.