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

2.5 ⇒ the products are price elastic

Step-by-step explanation:

Price elasticity of demand (PED) measures the effect that a 1% change in price will cause to the quantity demanded.

• If the 1% price change results in a proportional change in quantity demanded, then PED 0 1 and is unit elastic.
• If the 1% price change results in a more than proportional change in quantity demanded, then PED > 1 and is elastic.
• If the 1% price change results in a less than proportional change in quantity demanded, then PED < 1 and is inelastic.

PED = % change in quantity demanded / % change in price = 25% / 10% = 2.5

Answer 2

Answer: the product can best be described as elastic

Step-by-step explanation: