Practical importance of knowledge-price elasticity of demand, Managerial Economics

Practical Importance of the knowledge of Price Elasticity of demand

The practical importance of the measures of elasticity of demand is to be appreciated in various ways:

  1. From the point of view of individual consumers who tend to spend limited income on commodities with less elastic demand.
  2. From the point of view of business person who need to know the effects that changes in price will have on the sales revenue. For instance, if they know that demand for their product is relatively inelastic then increasing prices might help them to increase revenue. If on the other hand they are aware that source of their products have a high price elasticity of demand they will be more cautious when considering price increases for fear of losing revenue.
  3. From the point of view of firms in who may attempt to change the price elasticity of demand for their product through advertising, packaging, better service and other services to improve or help maintain sales.
  4. From the point of view of business people who may also want to know the price elasticity of demand as purchasers of inputs for use in their business.
  5. From the point of view of governments in trying to estimate the yield of a prospective market tax.
  6. From the point of view of devaluation policy aimed at improving the balance of payments.
  7. From the point of view of the effectiveness of price control and deregulation of some industries.
  8. From the point of view of wage bargaining among workers and employers and the government when fixing minimum wage legislation.
  9. For purposes of regulating farm incomes and to predict consequences of bumper harvests of crops.
Posted Date: 11/27/2012 6:36:41 AM | Location : United States

Your posts are moderated
Related Questions
Prices of other goods must remain constant Changes in the prices of other goods frequently impinge on the demand for a particular commodity. If prices of commodities for which

When Burton Cummings graduated with honors from the Canadian Trucking Academy, his father gave him a $350,000 tractor-trailer rig. Recently, Burton was boasting to some fellow truc

Q. Explain the Shut down point? ShutdownPoint: With MR = MC, firm attains equilibrium at point E where it produces OM amount of the output. To produce this output, firm incur

Case study for consumer behavior using indifference curev

Using Factor Incomes for Calculating National Income     A second method is to sum up all the incomes to individuals in the form of wages, rents, interests and profits t

#question.meaning of isoquants and its types

Consider the following hypothetical story: Last spring, there was an outbreak of a nasty disease known as cyclosporiasis, which was eventually traced to Guatemalan raspberries. Tog

State the difficulties in the measurement of profit.

I was given a few spreadsheets and asked to do an income, balance and cash flow statement. It''s a lot of info and I have no idea what I''m doing