Explain what is meant by price elasticity of demand.
What will be an ideal response?
Price elasticity of demand provides a measure of the sensitivity of consumer demand for a product or product category to changes in price. Elasticity is formally defined as the percentage change in quantity demanded relative to a given percentage change in price. For a product with highly elastic demand, a relatively small increase in price results in a huge change in quantity sold. Non-essential items or those with ready substitutes tend to have more elastic demand. If marketers can determine the price elasticity of demand for a product, setting a price is easier. By analyzing total revenues as prices change, marketers can determine whether a product is price elastic. Total revenue is price multiplied by quantity. If demand is elastic, a shift in price causes an opposite change in total revenue: An increase in price will decrease total revenue, and a decrease in price will increase total revenue. The following formula determines the price elasticity of demand: price elasticity of demand = % change in quantity demanded/ % change in price.
You might also like to view...
Trustworthy Insurance, Inc., has a valid reason to cancel a policy issued to USA Sales Company. In most states, Trustworthy could cancel the policy on
A. advance oral notice. B. oral or written notice, advance or contemporaneous. C. without notice. D. advance written notice.
Suzanne's total tax preferences and adjustments equals
Suzanne, a single taxpayer, has the following tax information for the current year. • Charitable contribution of real property with a FMV of $25,000 (adjusted basis $20,000) for which a $25,000 deduction was taken for regular tax. • Research and experimental expenses of $40,000 deducted in full for regular tax. A) $5,000. B) $36,000. C) $41,000. D) $45,000.
When the benefits of an action outweigh its costs, the action is considered ethically preferred according to:
A. Utilitarian reasoning. B. Theological reasoning. C. Virtue ethics. D. Plato and Aristotle.
________ is marketing research designed to solicit initial consumer reaction to new product ideas.
A. Test marketing B. Competitive comparison C. Concept testing D. One-on-one marketing E. Advertising testing