Certified Professional Category Analyst (CPCA) Practice Question

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What does a high level of price elasticity indicate about consumer behavior?

Consumers are sensitive to price changes

A high level of price elasticity indicates that consumers are sensitive to price changes. When the price of a product rises, consumers tend to buy significantly less of it, and conversely, when the price falls, they buy much more. This sensitivity suggests that consumers are highly responsive to fluctuations in price, which means that even small changes in price can lead to substantial changes in the quantity demanded.

This concept is important in understanding market dynamics, pricing strategies, and consumer behavior. For businesses, it highlights the potential impact of pricing decisions on sales volume and revenue. Markets where products are highly elastic are often competitive, as consumers have alternatives and can easily switch to similar products when price changes occur. Hence, a high price elasticity reflects a strong relationship between price and demand.

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Consumers are indifferent to price changes

Consumers only respond to discounts

Price does not affect demand

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