Understanding Elasticity in Business: Price and Income Elasticity of Demand

The video tutorial covers the concept of elasticity in business, focusing on price elasticity of demand (PED) and income elasticity of demand (YED). It explains how these elasticities measure the responsiveness of demand to changes in price and income, respectively. The tutorial also discusses factors influencing elasticity, such as product differentiation and brand loyalty. Additionally, it highlights the importance of understanding elasticity for business strategies, particularly in pricing and product portfolio management during different economic conditions.

What does price elasticity of demand (PED) measure?

• The change in price due to demand shifts

• The responsiveness of demand to price changes

• The total revenue generated by a product

• The cost of production for a good

If a product has a PED value between zero and minus one, what is the demand classified as?

• Elastic

• Inelastic

• Perfectly elastic

• Unitary

Which factor can make demand more inelastic?

• High number of substitutes

• Frequent price changes

• Strong brand loyalty

• Low product differentiation

What does a negative YED value indicate about a good?

• It is a luxury good

• It is a substitute good

• It is an inferior good

• It is a normal good

How is a luxury good characterized in terms of YED?

• YED value is exactly zero

• YED value is greater than one

• YED value is between zero and one

• YED value is less than zero

Why is understanding income elasticity of demand important for businesses?

• To determine production costs

• To adjust marketing strategies

• To manage product portfolios during economic changes

• To set employee salaries

What pricing strategy might a firm adopt if demand is inelastic?

• Lower prices to increase demand

• Increase prices to boost revenue

• Maintain current prices

• Offer discounts to attract customers