Question on: JAMB Economics - 2018
If the price elasticity of demand for a good is 0.43 an increase in the price of the good will result in____________
A
a decrease in profit by 43%
B
an increase in profit by 43%
C
a net loss
D
a net gain
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Correct Option: A
Here's how to determine the correct answer:
- Price Elasticity of Demand: The price elasticity of demand (PED) measures how much the quantity demanded of a good changes in response to a change in its price. A PED of 0.43 means the demand is relatively inelastic (less than 1).
- Inelastic Demand: When demand is inelastic, consumers are not very sensitive to price changes. This means that if the price of a good increases, the quantity demanded will decrease, but by a smaller proportion.
- Impact on Revenue: An increase in price will lead to a small decrease in quantity demanded. Since the percentage increase in price is greater than the percentage decrease in quantity demanded, total revenue (Price x Quantity) will increase.
- Profit: Since total
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