Price elasticity of demand
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What is the definition of price elasticity of demand? Explain the relationship between price elasticity and total revenue? How does price elasticity of demand affect a firm's pricing decisions? How does the availability of substitutes affect price elasticity of demand? Provide examples using both graphs and numeric examples. Just need help with the graphs
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Solution Summary
Price elasticity of demand as it relates to total revenue; pricing decisions; and availability of substitutes. Graphs provided.
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Price elasticity of demand tells us the proportion by which the quantity demanded changes with a change in price. For example, if the percentage change in price is greater than the percentage change in quantity demand, the good is said to be price inelastic. Very elastic goods, on the other hand, are those for which consumers will not tolerate price increases.
This is obviously critical in pricing decisions. If consumers are all ...
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