The price elasticity of demand is important to firms because
A)it explains the relationship between income and demand for the goods they sell
B)it shows how price changes affect total expenditures on the goods they sell
C)the law of demand suggests that elasticity falls as total expenditures continuously rises
D)it helps identify the equilibrium price and quantity in the market
E)it relates price to supply

Question

Quizplus · Accepted Answer

The price elasticity of demand shows how sensitive consumers are to changes in price, and therefore how changes in price will affect the total expenditures on a good. This information is important to firms as it helps them make decisions about pricing strategies and revenue maximization.

The Price Elasticity of Demand Is Important to Firms Because