Question

explain why it is for a seller to know the price elasticity of demand and describe three important determinants of price elasticity/

Answer 1

• Price elasticity of demand tells the relationship between price and quantity demanded
• it is given by the ratio of percentage change in the quantity demanded to the percentage change in the price
• it generally helps in telling that whether the demand is elastic ,in elastic or unit elastic in nature
• An elastic demand is that type of demand in which even there is a small change in the price can causes heavy change in the quantity demanded
• the value of price elasticitu of demand for elastic good is greater than 1in absolute value
• An inelastic demand is that type of demand in which even there is a very high change in the price can causes very low change in the quantity demanded
• in this the consumers are less price sensitive as compare to elastic demand
• the value of price elasticity of demand for inelastic demand is less than one in absolute value
• when the proportional change in price is equal to proportional change in the quantity demanded then the demand is said to be unit elastic in nature
• the value of price elasticity of demand for this is exactly equal to 1
• so if we talk about from the sellers perspective then they should know this concept in at least basic manners because they will know that for which good the consumers are price-sensitive or not
• if the consumer are prise sensitive then the sellers cannot increase the price sharply because it will lead to decrease in the quantity demanded by the consumers
• similarly if sellers know that which is good will come under the inelastic type of category then they clearly knows that in this case the consumers less price sensitive so they can increase the price as well