Question

. Explain in your own words what is meant by the term ‘price elasticity of demand’.

2. Why is it important for business managers to understand price elasticity of demand?

3. When price elasticity of demand is greater than 1, we say that the good is:
INELASTIC / ELASTIC / UNITARY ELASTIC / POSITIVELY ELASTIC
4. When price elasticity of demand is less than 1, we say that a good is:
INELASTIC / ELASTIC / UNITARY ELASTIC / NEGATIVELY ELASTIC
5. When price elasticity of demand is equal to 1, we say that a good is:
INELASTIC / ELASTIC / UNITARY ELASTIC / METRICALLY ELASTIC
6. Generally, demand is more price elastic at higher prices on the demand curve than at lower prices.
TRUE / FALSE

Answer 1

1. Price elasticity of demand is referred to the responsiveness of the quantity demand due to the changes in price of that commodity, other things remaining the same.

2. Price elasticity of demand helps the managers in making pricing decisions. If the product is price inelastic, then the managers can increase their revenue by increasing its price and if it is elastic, then a small change in price will affect the sales and revenue to a great extent.

3. When price elasticity of demand is greater than 1, we say that the good is:
INELASTIC / ELASTIC / UNITARY ELASTIC / POSITIVELY ELASTIC

The good is said to be price elastic, when the demand changes to a great extent with a small change in its price.

4. When price elasticity of demand is less than 1, we say that a good is:
INELASTIC / ELASTIC / UNITARY ELASTIC / NEGATIVELY ELASTIC

The good is said to be price inelastic, when the demand does not change to a great extent with any change in its price.

5. When price elasticity of demand is equal to 1, we say that a good is:
INELASTIC / ELASTIC / UNITARY ELASTIC / METRICALLY ELASTIC

The good is said to be unitary elastic when the proportionate change in price is equal to the proportionate change in quantity demanded.

6. Generally, demand is more price elastic at higher prices on the demand curve than at lower prices.
TRUE / FALSE

The demand for the quantity is said to be more elastic when the price is high compared to a lower price.