Knowee
Questions
Features
Study Tools

What is the value of the price elasticity of demand (PED) for a product if total revenue remains thesame when the price is reduced?

Question

What is the value of the price elasticity of demand (PED) for a product if total revenue remains the same when the price is reduced?

🧐 Not the exact question you are looking for?Go ask a question

Solution

The price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.

If total revenue remains the same when the price is reduced, it means that the percentage change in quantity demanded is exactly offset by the percentage change in price. In other words, the quantity demanded increases exactly as much as the price decreases.

In this case, the price elasticity of demand would be equal to 1. This is known as unit elastic demand.

Here's the step-by-step calculation:

  1. Calculate the percentage change in price. If the price decreases, this will be a negative number.
  2. Calculate the percentage change in quantity demanded. If quantity demanded increases, this will be a positive number.
  3. Divide the percentage change in quantity demanded by the percentage change in price to get the price elasticity of demand.
  4. If total revenue remains the same when the price is reduced, the price elasticity of demand will be 1.

This problem has been solved

Upgrade your grade with Knowee

Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.