Uses of price and income elasticity of demand, Microeconomics

Uses of price and income elasticity of demand:

The concept of price elasticity of demand has some uses whihc include the following:

(i) Pricing of goods and services

It is important that price elasticity of demand is considered in decisions to change prices of goods and services. If the demand for a good or service is elastic then to increase sales revenue, price should be reduced. On the other hand, if ademand is inelastic then to increase sales revenue, price should be increased.

(ii) Government taxation policy

Government imposes indirect taxes on goods and services to either raise revenue or discourage consuption of the good and service.Government pays attention to price elasticity of demand imposing indirect taxes on goods and services. If goverenment's aim is to raise revenue then goods and services with inelastic demand will be selected. On the other hand, if the aim is to discourage consumption then goods and services with inelastic demand will be selected.

(iii) Minimum wage policy

Minimum wage is usually fixed above the equilibrium market wage. This causes employers to demand less labour while supply of labour increases creating unemployment of labour. For minimum wage policy to succeed and cause less employment then demand for labour should be inelastic.

Posted Date: 1/2/2013 7:12:51 AM | Location : United States







Related Discussions:- Uses of price and income elasticity of demand, Assignment Help, Ask Question on Uses of price and income elasticity of demand, Get Answer, Expert's Help, Uses of price and income elasticity of demand Discussions

Write discussion on Uses of price and income elasticity of demand
Your posts are moderated
Related Questions
discuss whether marginal utility is a realistic piece of economy analysis in a consumer demand

Assume you go to the market to buy apples (x1) and oranges (x2) and discover that the price of apples is 1 euro per unit and the price of oranges is 1 per unit when you buy less th

#questThe demand for and supply of labour in a certain industry are given by the equations Nd = 400 - 2w Ns = 240 + 2w Where Nd ( is the number of workers employers want to hire

Effects of inflation: On Income Earners:Those on fixed incomes or assets (fixed in nominal terms) lose. However, those on incomes, which are directly related to the price leve

what is the profit maximising quantity of L

how does compensated demand curve help managers?

please can you explainn what "down 0.1 percentage point on the quarter means"?

Determinants of Private Demand - Gender Hypothetically, let us consider a family with two children, a boy and a girl. Let it be that both of them qualify in an entrance exami

Employment The calculations of human input in the production procedure. In the United States, there are two major measures of employment, as determined by the Bureau of Labor

Question 1: a. What is the supposed rationale for subsidising higher education in various developing countries? b. Do you think there is a legitimate rationale to the abov