Chapter 17, Question 3.3: Explain the concepts of elastic and inelastic demand. Why should managers understand these concepts?
Elastic demand is a situation in which consumer demand is sensitive to changes in price. Inelastic demand is a situation in which an increase or a decrease in a price will not significantly affect demand for the product.
Managers should understand these concepts when determining price. If demand is elastic and they choose to significantly increase price, they could lose customers. Conversely, if demand is inelastic, the manager could increase revenue by raising prices without affecting demand.
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