The price elasticity of demand helps determine the effect of price changes on a firm's
A)property taxes
B)profits
C)quantity supplied
D)revenues
E)total costs

Question

Quizplus · Accepted Answer

The price elasticity of demand is a measure of how much the quantity demanded of a good or service will change in response to a change in its price. If the demand for a product is elastic, a change in price will result in a greater change in quantity demanded. This means that if a firm lowers its price, it will sell more units of the product, which can increase revenues. On the other hand, if the demand for a product is inelastic, a change in price will result in a smaller change in quantity demanded. In this case, a firm may be able to raise its price without losing too many sales, which can also increase revenues. Therefore, understanding the price elasticity of demand is important for firms to determine the effect of price changes on their revenues.

The Price Elasticity of Demand Helps Determine the Effect of Price