Learning Path
Question & Answer
Choose the Best Answer
They should continue to raise prices to increase revenue.
They should lower prices to increase demand.
They should maintain prices as they are to keep stability.
They should ignore elasticity as it has no effect on profit.
Understanding the Answer
Let's break down why this is correct
When the price goes up, sales drop a lot, so the demand is elastic. Other options are incorrect because The mistake is thinking higher price always means more money; Keeping prices unchanged ignores the fact that customers respond to price changes.
Key Concepts
Price Elasticity of Demand
medium level question
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Deep Dive: Price Elasticity of Demand
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Definition
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. It quantifies how much the quantity demanded will change in percentage terms in response to a one percent change in price. Elasticity values help determine the sensitivity of demand to price fluctuations.
Topic Definition
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. It quantifies how much the quantity demanded will change in percentage terms in response to a one percent change in price. Elasticity values help determine the sensitivity of demand to price fluctuations.
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