Question

It is very important for the seller of a good to know whether the good is elastic, unit elastic, or inelastic in demand so that she will know what will happen to total revenue when she changes the price of the good.

Answer 1

True

Step-by-step explanation:

The price elasticity of demand (PED) measures how the quantity demanded of a product or services changes when its price changes by 1%.

PED > 1 price elastic. This means that a 1% change in the price will result in a proportionally larger change in the quantity demanded. Elastic products react positively to price decreases, increasing total revenue. E.g. price decreases by 10% and quantity demanded increases by 20%.

PED < 1 price inelastic. This means that a 1% change in the price will result in a proportionally smaller change in the quantity demanded. Inelastic products react positively to price increases, increasing total revenue. E.g. price increases by 10% and quantity demanded decreases by 5%.

PED = 1, price unitary. This means that a 1% change in the price will result in a proportionally equal change in the quantity demanded. Total revenue cannot be increased or decreased by changing the price.

Answer 2

True

Step-by-step explanation:

The reason is that when the relation between the price and the good is elastic then it is more probable that the demand of the product will significantly change with change in price. And if the the relation is inelastic, then the changes might be minor and the pricing decision maker has advantage to set higher prices to earn higher revenue.