Explain price elasticity. What determines the elasticity of demand?
What will be an ideal response?
Price elasticity refers to a measure of the sensitivity of demand to changes in price. If demand hardly changes with a small change in price, the demand is inelastic. If demand changes greatly, it is elastic.
If demand is elastic rather than inelastic, sellers will consider lowering their prices. A lower price will produce more total revenue. This practice makes sense as long as the extra costs of producing and selling more do not exceed the extra revenue. At the same time, most firms want to avoid pricing that turns their products into commodities. In recent years, forces such as deregulation and the instant price comparisons afforded by the Internet and other technologies have increased consumer price sensitivity, turning products ranging from telephones and computers to new automobiles into commodities in some consumers' eyes.
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When a country trades goods and services for other goods and services it is called _____.
Fill in the blank(s) with the appropriate word(s).
____________ - granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit that the foreign entity sells
Fill in the blank(s) with the appropriate word(s).