Western Governors University (WGU) BUSI3731 VZT1 Marketing Applications Practice Exam

In elastic markets, consumer demand is highly responsive to price changes. This means that when prices increase, the quantity demanded typically decreases significantly. As a result, total revenue, which is the product of price per unit and the quantity sold, will decrease when the price is raised. In other words, if a company's existing customers or potential customers have many alternatives or substitutes available to them, they are likely to reduce their purchases in response to a price increase.

This behavior can be illustrated with the fundamental concept of elasticity: if a given percentage change in price results in a larger percentage change in the quantity demanded, demand is classified as elastic. Therefore, when prices increase in an elastic market, the drop in sales volume outweighs the increase in price, leading to a decline in total revenue.

Understanding the concept of elasticity is crucial for businesses making pricing decisions, as it shapes their revenue potential based on the nature of consumer demand in their specific market.