- A.Offering a free tier with limited features to drive adoption, then converting users to paid tiers with premium features.
- B.Three primary approaches to setting price — cost-based, value-based, and competition-based — each appropriate to different market conditions.
- C.Price minus variable cost per unit — the dollars each unit contributes to covering fixed cost and profit.
- D.The percentage change in quantity demanded for a 1% change in price — elastic categories lose volume on price increases; inelastic categories don't. ✓
Price Elasticity of Demand is the percentage change in quantity demanded for a 1% change in price — elastic categories lose volume on price increases; inelastic categories don't. The other options describe related but distinct concepts in Pricing — see the deep-dive guide for the full distinction.
How to think about questions like this
Elasticity tells you whether a price change will increase or decrease total revenue. Questions like this test whether you can distinguish Price Elasticity of Demand from neighboring concepts. The most common trap is choosing a closely-related concept that sounds similar but applies in a different context.
When you see a definition question on an exam, do two things: (1) translate the question into your own words, then (2) generate the answer in your own words before reading the options. This avoids the cognitive bias of recognizing a familiar phrase as correct just because it is familiar.