Answer to Question #207921 in Microeconomics for Met

Question

Discuss why entrepreneurs might want to change the price elasticity of demand for their products, and consider the extent to which this is achievable.

Answer 1

Solution:

Price elasticity of demand measures the responsiveness of quantity demanded of a product to a change in price. Entrepreneurs normally want inelastic goods and services since they need to be able to change the price without significantly affecting demand. As such, entrepreneurs would want to decrease the price elasticity of demand for their products and services and make them have an inelastic demand. This is because goods and services with inelastic demand are not responsive to price changes or respond slightly. Therefore, entrepreneurs can be able to incur higher revenues by increasing the prices of the inelastic goods and services, since their demand will not be greatly impacted by the price change.

The extent to which this is achievable depends on many factors such as availability of substitutes, income levels, price levels, and whether the goods are luxury or necessities.