Importance Of Price Elasticity

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The aim of the research study highlights the concept and importance of elasticity of demand. The concept of price elasticity possesses an important place in economics as it relates to the basic methodologies of economics that is the demand and the supply. However, price elasticity helps the company to highlight the change in the business market especially in regards of the change in price of products; the role of elasticity is to permits the economist to predict the other changes that might occur due to the change in market price. In addition, the paper aims to outline the importance of price elasticity in regards of organisation to understand its importance and its relationship with product’s prices. Concept of Elasticity of Demand The concept…show more content…
For instance, it is observed that when a product is found inelastic or when a price of product is inelastic or insensitive, it would help the firm to increase their revenue whereas, an elastic price of a good or service, it is appropriate for the company to reduce the price of their product so is to increase their net income. However, the idea to increase or decrease the price of goods and services on the basis of elasticity or inelasticity is a general concept. Usually, price elasticity demand does not affect the organisation’s cost, competition or substitute product or others. Yet, it is important for companies to understand and take accounts of the price elasticity demand of their products so is to amend the prices in accordance with the change in market (Thirlwall,…show more content…
The elasticity of products can be determined in accordance with the substitutes of the products evolving in the market place as these substitutes encourage the consumers to switch their using brands or necessities with the available substitute of those products from the market. In addition, organisations can predict the price elasticity demand of their product in regards of their necessity among consumers. Necessary products that people use in their daily life like break, milk, and others or habitually using products such as cigarettes, alcohol are the product their consumer use in their daily like and have inelastic demand therefore, companies conducting business on these product tends to have more or less same prices to increase their business (Thimmapuram, et al.,

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