Calculating Price Elasticity of Demand and its Importance for Businesses.

The video tutorial explains how to calculate the price elasticity of demand (PED) using examples like newspapers and chocolate bars. It covers the formula for PED, how to calculate percentage changes in demand and price, and how to interpret inelastic demand. The tutorial also demonstrates rearranging the PED formula and using the elasticity triangle for problem-solving. Finally, it discusses the importance of elasticity in business pricing strategies, particularly in industries like sports.

What is the formula for calculating Price Elasticity of Demand?

• Percentage change in supply divided by percentage change in quantity

• Percentage change in demand divided by percentage change in price

• Percentage change in price divided by percentage change in demand

• Percentage change in quantity divided by percentage change in supply

In the context of the Times newspaper, what does an inelastic demand indicate?

• Demand decreases with price

• Demand increases with price

• Demand is less sensitive to price changes

• Demand is highly sensitive to price changes

How can the elasticity triangle help in solving PED problems?

• It provides a visual representation of supply and demand

• It helps in identifying the correct calculation by covering the unknown variable

• It shows the relationship between price and quantity

• It predicts future market trends

Why is understanding elasticity important for businesses?

• It guarantees customer satisfaction

• It helps in determining the optimal pricing strategy

• It predicts competitor actions

• It ensures maximum production

What strategy should a business adopt if it faces inelastic demand?

• Maintain current prices

• Increase production to meet demand

• Raise prices to increase revenue

• Lower prices to increase demand

In the sporting industry, how do clubs use elasticity to maximize revenue for less attractive matches?

• By increasing ticket prices

• By offering free tickets

• By reducing ticket prices

• By limiting ticket sales

What happens to demand when a product has elastic demand and prices are reduced?

• Demand increases

• Demand decreases

• Demand becomes unpredictable

• Demand remains unchanged