When The Pastry Hut Ltd sold Product BK2 for $250 each, the quantity demanded per month was 3,500 units.

The company increased the price of the product to $300 per unit, and the demand fell to 3,000 units per month. The company has consulted you to do the following:

Required:

1. Explain the meaning of price elasticity of demand and the importance of this concept to buyers and sellers of goods.
2. Calculate the price elasticity of demand for Product BK2 from the information above.
3. Briefly explain the type of demand for Product BK2.

1. Determine what would happen to the demand for the product, if the price should fall by 25%.

1. Draw sketches and briefly explain the following: perfectly inelastic demand and perfectly elastic demand.