Question

Explain what Price Elasticity of Demand means. What does it mean to say price elasticity of demand is, for example, 0.39%.

Answer #1

Price elasticity of demand measures the degree of responsiveness of quantity demanded of a good to a percentage change in its price. Price elasticity of greater than one states that elasticity is price elastic as the change in price will cause a greater proportionate change in the quantity demanded whereas a price elasticity of less than one means that the proportionate change in quantity demanded is less than the proportionate change in the price.

It is measured by the formula:

Percentage change in quantity demanded/Percentage change in price

Price elasticity of demand of 0.39 shows that the demand changes by 0.39% per 1% change in its price which means that price elasticity of demand for the good is inelastic.

What does it mean if I tell you that the price elasticity of
demand of apples is 3.2, while the price elasticity of demand of
apple juice is 1.5? In your answer, be sure to explain what
elasticity is and whether you consider these products to be elastic
or inelastic. Finally, suggest reasons why these elasticities might
make sense. Are there complements? Substitutes? Explain.

3. What do economists mean when they say that the demand is
elastic? Interpret what it means when the magnitude of the price
elasticity of demand/supply is greater than, less than, or equal to
1.

Describe what price elasticity of demand means to a manager
facing a pricing decision

If the Price Elasticity of Demand is -1/2, we can say that:
Demand is inElastic
Demand is Elastic
Demand is perfectly Elastic
Demand is perfectly inElastic

How does the number of substitutes affect the price elasticity
of demand for a product or resource? What does a higher number of
substitutes mean for the slope of the demand curve? What does a
smaller number of substitutes mean for the slope of the demand
curve?

Explain the concepts of own-price elasticity, cross-price
elasticity and income elasticity of demand. State the factors that
determine own-price elasticity of demand for a normal good

Provide an example of the concept of the Price elasticity of
Demand and explain its impact on a business.

What does it mean for the elasticity of demand to be ,7? How
would you use this elasticity in decision making?

. What is the relationship between price elasticity and position
on the demand curve? For example, as you move up the demand curve
to higher prices and lower quantities, what happens to the measured
elasticity? How would you explain that?

1. Explain the difference between price elasticity of demand and
income elasticity of demand. 2. If demand is elastic, how will an
increase in price change total revenue?

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