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Research Report: the Price Elasticity of Demand

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Research Report: the Price Elasticity of Demand
Managerial Economics Research Report: The Price Elasticity of Demand

The Price Elasticity of Demand: 1. Introduction: Price elasticity of demand is an economic measure that is used to measure the degree of responsiveness of the quantity demanded of a good to change in its price, when all other influences on buyers remain the same. Elasticity of demand helps the sales manager in fixing the price of his product, deciding the sales, pricing policies and optimal price for their products. The evaluation of this measure is a useful tool for firms in making decisions about pricing and production which will determine the total revenues for the firms. In our research, we will discuss about price elasticity of demand, we will explain how firms can use the price elasticity of demand for Goods and services to decide on sales, setting pricing policies and determining the optimal price to maximize revenues. 2. Analysis: Before analyzing the effect of price elasticity of demand on change in a firm’s revenue, it is significant to analyze the price elasticity of demand itself. The price elasticity of demand reflects the relation between price and quantity. An elastic demand means that the quantity demanded is relatively responsive to changes in price i.e. Elasticity > 1. It is calculated as: Price Elasticity of Demand = % ∆ Quantity demanded % ∆ Price

Sales: After the analysis of price elasticity of demand we can identify the relationship between the prices and firm’s revenue. Given the price elasticity of demand facing the firm in the relevant range of production, how would a change


References: 1. http://www.netmba.com/marketing/pricing/ 2. http://www.netmba.com/econ/micro/demand/elasticity/price/ 3. http://www.enotes.com/business/q-and-a/discuss-importance-elasticity-demand-and-its-146187 4. http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm 5. http://www.tutor2u.net/economics/revision-notes/as-markets-price-elasticity-of-demand.html
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