Question

A few months before, a major B2B supplier raised prices of its products 10 percent to cover changes in market conditions. He was surprised to find how the orders from his normal customers plummeted. His normal order was $1,100. After the price increase, the average order dropped by 25 percent. He became concerned that customers might look elsewhere. For this reason, he decided to start offering discounts. When one of his loyal customers, David, purchases $950 worth of product for his firm, the supplier gives David the terms "4/20 net 30." He wants to maintain his relationship with David and would ideally like to receive payment in less than a month. Refer to Scenario 19.3. Consider how the average order amount changed when prices were raised $75. The elasticity of demand is _______. With this in mind, the product can best be described as _______.

Answer 1

Elastic demand

Step-by-step explanation:

Elastic demand states when there is a change in the price of a product the quantity demanded changes. An increase in price may lead to a decrease in demand whereas, a decrease in price may lead to an increase in quantity demanded.

In this case we see when the B2B supplier increase its price, the orders dropped by 25%. Which proves that it is an elastic demand.

If an increase in price leads to no changes or increase in quantity demanded then it is called inelastic demand. Example: disease curing drugs.