Price Elasticity of Demand Measures How Sensitive Consumer Demand and the Firm's

question 242

Essay

Price elasticity of demand measures how sensitive consumer demand and the firm's revenues are to changes in the product's price. Explain the difference between a product with elastic demand and a product with inelastic demand.

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Definitions:

Discount Rate

The discount rate applied in the process of discounted cash flow (DCF) analysis to calculate the current value of anticipated future cash flows.

Abnormal Earnings Approach

A valuation method that estimates a company's value based on the prediction of future abnormal earnings, defined as earnings in excess of a normal return on investment.

Free Cash Flow Approach

A valuation method focusing on the cash flows that a company can generate after accounting for capital expenditures required to maintain or expand the asset base.

Return On Assets

A financial ratio indicating the profitability of a company relative to its total assets, measuring how efficiently a company uses its assets to generate profit.