The price elasticity of demand helps determine the effect of price changes on a firm's:
A)property tax.
B)profit.
C)total output.
D)revenue.
E)total cost.

Question

The price elasticity of demand helps determine the effect of price changes on a firm's:​
A)property tax.
B)profit.
C)total output.
D)revenue.
E)total cost.

Quizplus · Accepted Answer

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. Therefore, it is a useful tool in determining the effect of price changes on a firm's revenue. When demand is elastic, a decrease in price will lead to an increase in revenue, while an increase in price will lead to a decrease in revenue. When demand is inelastic, a decrease in price will lead to a decrease in revenue, while an increase in price will lead to an increase in revenue. Knowing the price elasticity of demand for a particular product can help a firm determine the optimal price to charge in order to maximize revenue.

The Price Elasticity of Demand Helps Determine the Effect of Price