Question

ENOUS Dahawanando Danmark pricing decision 990 Exam-style questions A product has a YED of -0.7. What does this mean? A income rises by 7%, demand will fall by more than 1% 8 income rises by 1%, demand will fall by less than 1% C income rises by 1%, demand will rise by more than 1%. D If income rises by 1%, demand will rise by less than 1%. 23 A product has a PED of -1.5. If price goes down by 5%, what will happen to demand? A Demand will go up by 7.5%. B Demand will go down by 7.5%. C Demand will go up by 2.5%. D Demand will go down by 2.5% 20 Explain one possible use of PED to the owner of a bed and breakfast venture marke (4) 23 Explain why the PED of a bed and breakfast venture will vary at different points in time. Smarke

Answer 1

21) Price elasticity of demand(PED) shows the responsiveness of quantity demanded to the price. If PED < 1, then the good have inelastic demand which means that even if the price rises by large, quantity demanded changes by small or if PED > 1, then the good is meant to have elastic demand which means when the price changes by small, quantity demanded changes by large. Manager can look at the elasticity of good and charge a high price and earns more revenue if the good have inelastic demand while they have to be competitive in the market as per their prices if the good have elastic demand. Consumers buy inelastic goods even in the case of no marketing of that product while elastic goods needs more marketing to attract customers.