Question

• What is price elasticity of demand?
A. A measure of the extent to which prices changes when the quantity demanded
changes.
B. A measure of the extent to which the quantity demanded changes when price
changes.
C. A measure of the extent to which total revenue changes when price changes.
D. A measure of the extent to which prices changes when total revenue changes.​

Answer 1

Answer:

Price elasticity of demand (Epd), or elasticity, is the degree to which the effective desire for something changes as its price changes. In general, people desire things less as those things become more expensive. However, for some products, the customer's desire could drop sharply even with a little price increase, and for other products, it could stay almost the same even with a big price increase. Economists use the term elasticity to denote this sensitivity to price increases. More precisely, price elasticity gives the percentage change in quantity demanded when there is a one percent increase in price, holding everything else constant.

Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to ambiguity. Only goods which do not conform to the law of demand, such as Veblen and Giffen goods, have a positive elasticity. In general, the demand for a good is said to be inelastic (or relatively inelastic) when the elasticity is less than one (in absolute value): that is, changes in price have a relatively small effect on the quantity of the good demanded. The demand for a good is said to be elastic (or relatively elastic) when its elasticity is greater than one.

Revenue is maximised when price is set so that the elasticity is exactly one. The good's elasticity can also be used to predict the incidence (or "burden") of a tax on that good. Various research methods are used to determine price elasticity, including test markets, analysis of historical sales data and conjoint analysis. Price elasticity of demand further divided into: Perfectly Elastic Demand (∞), Perfectly Inelastic Demand ( 0 ), Relatively Elastic Demand (> 1), Relatively Inelastic Demand (< 1), Unitary Elasticity Demand (= 1).