The concept of elasticity of demand plays a crucial role in the pricing decisions of the business firms and the government when it regulates prices. Uses of price elasticity of demand in business decision. For example, advertising elasticity is the relationship between a change in a firms advertising budget and the. How is the price elasticity of demand useful to consumers. Essay on importance of income elasticity to firms 939 words 4 pages introduction in any economy, the levels of incomes of the population determine the level of demand of commodities produced and made available in that economy. Among them, price elasticity of demand is one of the most common types and is also the most relevant to business. Elasticity is a measure of the responsiveness of one economic variable to another. Elasticity is an economic concept used to measure the change in the aggregate quantity demanded for a good or service in relation to price movements of that good or service. Explain the relevance of elasticity price and elasticity cross in business decision making. In other words, if the demand of a factor is inelastic, its price will be high and if it is elastic, its price will be low. Elasticity is an important economic measure, particularly for sellers of goods or services, because the reflects how much of a good or service buyers will. A more technical definition is that elasticity is the ratio of the percent change in one variable to the.
Whats the importance of price elasticity of demand to the. The importance of elasticity of supply price elasticity of supply measures the relationship between change in quantity supplied and a change in price. Consumers adjust their spending habits along with changes in their. The concept of elasticity is also important in judging the effect of devaluation of a currency on its export earnings. Elasticity is a measure of a variables sensitivity to a change in another variable. As regards its importance in the academic interest, the concept, is very helpful in the theory of value. Hence elasticity is a concept which enables all producers to take correct decision regarding the quantum of output based on the demand. The firm needs to know whether their product has an elastic or. What is the practical importance of the elasticity of. The price elasticity of demand is important to firms because it helps them in pricing their products. What is the importance of the elasticity of supply.
The importance of income elasticity in decisionmaking. Price elasticity of demand can be a useful tool for businessmen to make crucial decisions like deciding the price of goods and services. While fixing the price of this product, a businessman has to consider the elasticity of demand for the product. Often price elasticity is not well understood but as a business owner, you need to understand price and demand elasticity when building pricing strategies for your products or services. For the producer, the elasticity of demand tells them how responsive the quantity demanded is to price changes. Price elasticity of demand is a very important concept. Since demand for food is generally inelastic, farmers may often face the. Elasticity, consumers, producers, and market efficiency wikiversity. When pes 1, then supply is price elastic when pes elasticity for them. In order to fix prices of the goods to be exported, it is important to have knowledge about. The price elasticity refers to the degree of responsiveness of demand as a result of a change in price. Higher the price elasticity of supply, higher is the ability of a producer to responsd to change in demand and greater is his control over. Elasticity, consumers, producers, and market efficiency. When econ professors used to teach this topic theyd use a number of real world examples with oil gasoline being a favorite.
The consumers preferences completely determine a goods elasticity for them. Get an answer for whats the importance of price elasticity of demand to the government. In practical terms, elasticity refers to the responsiveness of the quantity demanded and supplied to changes in price. The importance of elasticity of demand 5 important points. The concept of elasticity for demand is of great importance for determining prices of various factors of production. The importance of elasticity of supply how it determines the effect of rise in demand. Its importance can be realized from the following points. He should consider whether a lowering of price will stimulate demand for his product, and if so to what extent and whether. Studying elasticities is useful for a number of reasons, pricing being most important. Price elasticity of demand is the change in demand of a product based on the increase or decrease of the price of that product. The price elasticity of demand is important to firms because it helps them in pricing their. It is of significant importance to the government because it is used. Some important points from which you can realize the important of price elasticity of demand. The concept of elasticity provides a guideline to the producers for the amount to be spent on advertisement.
Essay on importance of income elasticity to firms 939. Price elasticity of demand is a way of looking at sensitivity of price related to product demand. Presented by rajiv joshi 20 joylyn fernandes 12 shrinivas gajengi biju thomas shirin khetani 63 sourav modak bernard fernandes 11. Price elasticity of supply measures the responsiveness of supply to a change in pricedemand of the product. Elasticity of demand as a useful marketing concept jstor. Demand elasticity is an economic concept also known as price elasticity.
A bumper crop, instead of bringing prosperity to farmers, brings poverty. It plays vital role in other business procedures too. Why is price elasticity of demand important to firms. Lets explore how elasticity relates to revenue and pricing, both in the long run and. What is the practical importance of the elasticity of demand. The suggestion was that with a seemingly finite supply and a seemingly infinite demand producers opec mostly could cha.
36 1096 39 1175 472 1378 361 1105 1019 1149 932 276 214 684 23 1361 396 1400 1421 607 278 1001 524 336 738 422 573 512 590 256 681 493 308 635 162