Firms would like to know the price elasticity of demand for their products because it helps determine the effect of price changes on the firms':
A) property taxes.
B) competitors' profits.
C) quantity supplied.
D) revenues.
E) total costs.

Question

Quizplus · Accepted Answer

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. Firms would like to know the price elasticity of demand for their products because it helps them determine the effect of price changes on their revenues. If demand is relatively elastic, a small price increase will lead to a large decrease in quantity demanded, which means that revenue will actually decrease. Conversely, if demand is relatively inelastic, a small price increase will result in a small decrease in quantity demanded, which means that revenue will increase.

Firms Would Like to Know the Price Elasticity of Demand