Define price elasticity of demand . Give an example of a product with relatively elastic demand and an example of a product with relatively inelastic demand. (Give examples not given in the text.)
Define price elasticity of demand . Give an example of a product with relatively elastic demand and an example of a product with relatively inelastic demand. (Give examples not given in the text.)
Define price elasticity of demand. Give an example of a product with relatively elastic demand and an example of a product with relatively inelastic demand. (Give examples not given in the text.)
Expert Solution & Answer
To determine
Explain price elasticity of demand and cite examples of a product with relatively elastic demand and relatively inelastic demand.
Explanation of Solution
Price elasticity of demand: Price elasticity of demand is the degree of responsiveness of the changes in demand with respect to the changes in price. Price elasticity of demand is measured by dividing the percentage change in quantity and percentage change in price.
A demand is said to be relatively elastic when a small change in price (say X) results in the quantity change of more than X percent. Goods that have more substitutes such as ice cream bars, soft drinks, airline tickets have relatively elastic demand.
A demand is said to be relatively inelastic when a small change in price (say X) results in the quantity change of less than X percent. Goods that have less or no substitutes such as medicines, salt, toner cartridges have relatively inelastic demand.
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Explain the following assertion: “Price setting generally requires a balance between market forces and cost considerations.”
Which of the following statements regarding price elasticity is incorrect?
a. A product with a perfectly inelastic demand would have the same demand even as prices change.
b. A product with a perfectly inelastic demand would see demand change as prices change.
c. When demand is price elastic, lower prices stimulate demand.
d. When demand is price elastic, higher prices reduce demand.
Chapter 18 Solutions
Cornerstones of Cost Management (Cornerstones Series)
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