(a) Define price elasticity of demand (b) Distinguish between elastic demand and Inelastic demand (C) Using diagrams. explain what happens to a traders tota...

Answer Details

(a) Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good or service to a change in its price. It is used to determine the extent to which a change in price will affect the quantity demanded.

(b) Elastic demand refers to a situation where a small change in price leads to a relatively large change in the quantity demanded. Inelastic demand refers to a situation where a change in price has little effect on the quantity demanded.

(c) (i) If the demand for a product is elastic, a small change in price will result in a relatively large change in the quantity demanded. This means that if the price of a product increases, the quantity demanded will decrease, and the total revenue of the trader will decrease as well. On the other hand, if the price of a product decreases, the quantity demanded will increase, and the total revenue of the trader will increase. This can be illustrated through a downward-sloping demand curve, as shown in the diagram.

(ii) If the demand for a product is inelastic, a change in price will have little effect on the quantity demanded. This means that if the price of a product increases, the quantity demanded will only decrease slightly, and the total revenue of the trader will increase. On the other hand, if the price of a product decreases, the quantity demanded will only increase slightly, and the total revenue of the trader will decrease. This can be illustrated through a flatter demand curve, as shown in the diagram.