Question

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

Answer 1

Price elasticity of the demand is the responsiveness of the demand in relation to the change in price, if the demand change more than the price then the demand is elastic if the change in the demand is less than the price then the demand is inelastic.

For example, if the price change in 50%, and a change in the demand is less than 50% then its inelastic, more than 50% its elastic and just 50% it will be considered as unitary elastic.

IF the demand is elastic and the firm decreased the price then the revenue will increase and if the demand is inelastic and the firm increased the price then the revenue will increase, it will fall in other cases.