If the demand is elastic, a small change in the price brings about a considerable change in the quantity demanded, but in the case of inelastic demand this consequential change in demand is relatively small.
The knowledge of elasticity is also valuable in the formation of Practical application of price elasticity policies, too.
The government takes into consideration the price elasticity of demand while planning taxes. Similarly, in the case of import and export duties on commodities the inelasticity of demand can be used to determine the incidence of such duties.
Price Determination of Joint-cost Products: But ultimate the August court of the country had to intervene. He will fix the price at a low level when the demand is elastic and at a high level when it is inelastic.
One should also know if the rise or fall of income is temporary or permanent. The high price of a product with demand remaining the constant helps in generating the large revenue for an organization.
They neither measure change of price in currency nor change of quantity demanded in weighs. Thus price increase policy is to be followed if the demand is inelastic in the market and price decrease policy is to be followed if the price is elastic.
Hence it helps in forecasting activities of a firm.
In monopolistic market conditions, if the demand is elastic, the price is set very low for per unit of product. There were other priorities to allocate my resources.
This is because the use of electricity for industrial purposes can be replaced with other fuels. It so happens because in the former case taxes may raise their prices but their demand and sales will not fall very much; but, in the latter case taxes, by raising the prices, reduce the demand and sales considerably.
For example, a monopolist charges more prices from consumers whose demand for products is inelastic. A country suffering from balance of payments problems may try to tackle the imbalance by devaluing its currency.
This results in high demand for the product due to low price. Refers to the fact that under monopolistic market conditions, the price of products is determined only on the basis of price elasticity of demand.
This implies high prices are charged from consumers whose demand does not change with change in the price of products. Refer to one of the major role of price elasticity of demand.
Firstly, the total expenditure by the consumers will determine the size of the tax yield. Apart from this, the government also considers the price elasticity of demand before implementing any price control policy.
However, the baseline of all such application is knowledge of the amount of change in price which can impact demand of quantity to maximize the benefit. Applications of Price Elasticity of Demand This model has a robust scope of applications in business as well as public sectors.
If he pushes commodity tax excise duty rates up too much the consequent increase in price may make the total tax yield even lower than before. On the other hand, if the demand is inelastic, the price is set very high. The fundamental law of demand guides us that change in price results towards a shift in demand for the product.
Price discrimination refers to the practice of charging different prices for the same product from different buyers at the same time. It can get more revenue from the taxes imposed on commodities with inelastic demand like sugar, clothes, kerosene oil, etc. I came out with a new pair of shoes.
It is more important for public managers to know which policies help them to increase or decrease demand for certain goods and services. For example, the demand for electricity for domestic users is inelastic; therefore, the price of domestic electricity is high, whereas the demand for industrial electricity is inelastic.7- The price elasticity of demand helps the monopolist most to fix prices of the products which are inelastic or relatively inelastic to maximize his profits.
8- The price elasticity of demand also helps us to see what substitutes can. Price elasticity of demand and practical application. Price elasticity of demand Price elasticity of demand is a measure to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price.
Practical application of price elasticity of demand is as follows: •Production planning - It helps the producer to decide about the volume of production. Practical Applications of Price Elasticity of Demand. Article Shared by. ADVERTISEMENTS: The concept of price elasticity of demand has a significant contribution in the field of industry, trade, and commerce.
Elasticity and Its Application Chapter 5 Elasticity Price elasticity of demand is the percentage change in quantity demanded given a percent change in the price. Price elasticity of demand and practical application. Price elasticity of demand Price elasticity of demand is a measure to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price.Download