What could a firm do if it wanted to know whether the demand for its product was elastic, unit-elastic, or inelastic?
A)Survey competitors and ask them what they think demand elasticity is for the product.
B)Talk to its customers.
C)Change price a little bit and observe what happens to total revenue.
D)Not do anything as there is no way to find an elasticity value.

Question

Quizplus · Accepted Answer

The best choice would be to change the price a little bit and observe what happens to total revenue. If the total revenue increases, then the demand is inelastic. If it remains the same, then it is unit-elastic. If the total revenue decreases, then the demand is elastic. Talking to customers may provide some insight, but it may not be an accurate representation of the entire market. Surveying competitors would not necessarily provide trustworthy information. Therefore, changing the price and observing total revenue would offer the most accurate assessment of demand elasticity. Option D is incorrect because there are indeed ways to calculate elasticity.

What Could a Firm Do If It Wanted to Know