Question

Use each of the terms below in a sentence that gives an example of the term: a. elastic b. inelastic c. total revenue

Short answer

Elastic goods have sales that vary significantly with price changes, inelastic goods don't, and total revenue is the total sales amount.

Step-by-step solution

Understanding Elasticity

When a good is described as 'elastic,' it means that the quantity demanded changes significantly when there is a change in price. This could be applied to luxury goods, where a small drop in price might result in a large increase in demand.

Formulating a Sentence for Elastic

An example sentence using the term 'elastic' could be: 'The demand for sports cars is elastic because a decrease in price leads to a significant increase in sales.' This sentence explains that sports cars have an elastic demand, meaning the change in price greatly affects the quantity demanded.

Understanding Inelasticity

A good is termed 'inelastic' when the quantity demanded doesn't change much with price fluctuations. This often applies to necessities, where consumers will continue to buy despite price increases.

Formulating a Sentence for Inelastic

An example sentence using the term 'inelastic' could be: 'The demand for insulin is inelastic, as people with diabetes must purchase it regardless of price changes.' This highlights that despite price changes, the demand remains relatively constant.

Understanding Total Revenue

Total revenue refers to the total amount of money a firm receives from sales of its goods or services. It is calculated by multiplying the price of the good by the quantity sold.

Formulating a Sentence for Total Revenue

An example sentence using 'total revenue' is: 'A decrease in the price of the software led to an increase in total revenue due to higher sales volume.' This sentence illustrates how total revenue is affected by both price changes and sales volume.

Key concepts

Elasticity

Elasticity in economics is a key concept that describes how sensitive the quantity demanded of a good is to a change in its price. Imagine elasticity as the ability of demand to "stretch" or "shrink" in response to price changes. Goods that are considered elastic tend to have a higher responsiveness; that is, their demand varies greatly with price fluctuations.

Characteristics of elastic goods often include:

• They are typically non-essential or luxury items. For example, sports cars.
• They have many substitutes available, such as branded clothing.
• A small decrease in price can lead to a significant increase in demand.

Understanding elasticity helps businesses and economists predict how changes in pricing can influence consumer buying behavior. It allows them to set pricing strategies that maximize sales and market presence. For example, if an item is known to be elastic, reducing its price might significantly boost demand and sales volume.

Inelasticity

Inelasticity refers to the scenario where the quantity demanded of a good doesn't respond much to price changes. These goods are often necessities that people depend on, regardless of their price. For example, life-saving drugs like insulin possess inelastic demand.

If a product is inelastic, it usually features:

• Few or no substitutes available.
• A necessity for consumer daily life.
• Stable demand even during price hikes.

For businesses, understanding inelasticity is crucial because it allows them to forecast revenue with greater accuracy, even with changing prices. They know that increasing or decreasing the price of an inelastic good will typically result in less volatility in sales volume, providing a steady stream of income. Consumers cannot easily switch their consumption pattern, maintaining constant demand despite market shifts.

Total Revenue

Total revenue is a fundamental concept in economics that refers to the overall income generated from sales of goods or services. It's calculated by multiplying the price of the product by the quantity sold. This formula for total revenue is:\[ \text{Total Revenue} = \text{Price} \times \text{Quantity Sold} \]This measure helps businesses understand how various factors, like price and demand, impact their income. For example, when a company reduces the price of its software, it might see an increase in sales volume. If the increase in sales volume compensates for the reduced price, overall total revenue can increase.

Insights into total revenue are essential for making informed business decisions:

• Pricing strategies: Adjusting prices to maximize revenue.
• Production planning: Determining the optimal quantity to produce.
• Market analysis: Understanding consumer behavior in response to price changes.

By examining how total revenue changes with price alterations, firms can develop strategies that enhance profitability and economic efficiency.