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    Price elasticity of demand

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    A) Price elasticity of demand is telling us about the slope of the demand curve. Price elasticity of demand is asking: Is the demand curve really steep or even vertical (inelastic) where a large price change will have very little effect on the quantity demanded? Is the demand curve really flat or horizontal (elastic) where a small change in price causes a big change in quantity demanded?

    OTA, in your own words based on experience, can you provide an example of a good or service for elastic and inelastic?

    B) Depending on such determinants as number of substitutes, price of substitutes, income level, expectations, etc....price elasticity of demand will be more or less elastic or inelastic.

    OTA, in your own words based on experience, now about price elasticity, its effect on quantity demanded and more importantly total revenue, how essential do you believe it is for a company to know what the price elasticity of demand is for all its goods and services?

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    Solution Preview

    A)

    An example of a elastic good will be meals in a restaurant. The demand for restaurant meal will decline, as and when price is increased and vice versa. We often see that whenever a restaurant raises the price of its menu, its demand starts declining and people flock to other restaurants. Similarly, when price of the menu declines, more people flock to the restaurant than before.

    Similarly, a match box will be an example of inelastic good. ...

    Solution Summary

    Price elasticity of demand is telling us about the slope of the demand curve.

    $2.19

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