5 : elasticity and its importants to businesses

Question 1

what is a rectangular hyperbola ?

Answer 1

this means that a % change in the price of a good will lead to an exact and opposite change in quantity demanded

for example :
a good would have unitary elasticity if a 10% increase led to a 10% decrease in quantity demanded

Question 2

what is the importance of price elasticity of demand for a business ?

Answer 2

• firms can use ped estimates to predict :
• the effect of a change in price on quantity demanded
• the effect of a change in price on total revenue
• The expected price changes in a market after unexpected supply shifts.

Question 3

what is the formula for profit ?

Answer 3

Sales revenue - costs = profit

Question 4

what are the factors that determine Ped ?

Answer 4

you can use SPLAT :
S : Substitutes
p : Percentage
L : Luxury or necessity
A : Addictive
T : Time

Question 5

what are some problems measuring elasticity of demand ?

Answer 5

• collecting data :
• need to collect data o demand changes
• predicting human behavior:
• humans will respond differently to price
• interpreting data :
• what day hot or cold , impact on ice cream sales