Answer to Question #276710 in Microeconomics for cyah

Question

Explain the meaning of price elasticity of demand and the reasons business estimate it for their products. Provide a relevant example to support your explanation.

Answer 1

Price elasticity of demand refers to the relationship of change in quantity demanded to the change in price when all other factors are constant.

Price elasticity of demand helps in making decisions of the price of the business firms and the state when it moderate prices.

Price elasticity of demand also helps in judging the effect of decreasing of income on it's export earnings.

Example of the price elasticity of demand is how the change in the price of a luxury car can cause a change in the quantity demanded.