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iragen [17]
3 years ago
7

According to Duffy-Deno (2003), when the price of broadband access capacity (the amount of information one can send over an Inte

rnet connection) increases 10%, commercial customers buy about 3.8% less capacity. What is the elasticity of demand for broadband access capacity for firms? Is demand at the current price inelastic?
Business
1 answer:
ira [324]3 years ago
3 0

Answer:

-Price elasticity of demand (PED )= 0.38

-The PED is less than one, therefore the demand is price inelastic.

Explanation:

Price elasticity of demand (PED) is the degree of responsiveness of quantity demanded to a unit change in the price of the product all other things being equal. This index measures the corresponding magnitude  by which quantity demand will increase, for example, if the price reduces by a given %.

Price elasticity of demand Index is interpreted as follows:

<em>if PED greater than 1, product is elastic</em>

<em>if PED less that 1, product is inelastic</em>

PED is very useful in pricing policy. For example, a product that is price elastic will accrue more revenue if the seller reduces its price and vice versa

The price elasticity of demand for a product can be computed as follows:

PED = % change in qty DD/ % change in price

<em>So we can compute the PED for Duffy-Deno as follows:</em>

   PED    =  3.8%/10%    

The PED is less than one, therefore the demand is price inelastic.

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