Business use and limitations Flashcards
1
Q
Why is PED useful for businesses?
A
It is useful for making pricing decisions.
- when demand is price elastic you should reduce the price to increase total revenue.
- when demand is price-inelastic you should increase the price to increase total revenue.
2
Q
Why is PES useful for businesses?
A
Businesses’s aim is to make supply as price-elastic as price rises, but if prices are low then supply will lower.
3
Q
Why is XED useful for businesses?
A
Pricing decisions-meaning to cut prices means the firm can go ahead of its rival.
non-price competition- cutting price will lead to price-war
4
Q
What are the disadvantages of these business uses?
A
Elasticity figures only estimates
ceteris paribus
PED varies along the demand curve.
