Answer to Question #287315 in Microeconomics for Neum

Question

Explain the term price elasticity of demand? How is it measured? What factors influence market demand for products? If the price elasticity is -3 and RM 100 is the marginal cost of product X, what should be the optimal sale price?

Answer 1

Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price when nothing but the price changes.

Factors that influence market demand for products are:

1. Normal Goods

2. Change in Preferences

3. Complimentary Goods

4. Substitutes

5. Market Size

6. Price Expectations

If the price elasticity is Ed = -3 and MC = RM 100, then the optimal sale price is P = MR = MC = RM 100.