![]() If the demand for labor in an industry is elastic, union stakeholders’ strategies would not be of many benefits in raising wages. In deciding the wages of a specific form of labor, the principle of demand elasticity is essential. ![]() That is why products such as wool, wheat, and cotton with inelastic demand are highly-priced compared to products such as mutton, straw, and cotton-seeds with elastic demand. The price of each one is then set on the basis of its demand elasticity. Separate production costs of each material are not understood in such situations. The principle of demand elasticity is commonly used in the pricing of joint goods, such as wool and mutton, wheat and straw, cotton and cotton seeds, oil and oil cakes, etc. It charges high prices for consumers whose demand is inelastic, and low prices for consumers whose demand is elastic. The strategy of price discrimination can be implemented by a monopolist because the price elasticity of demand for his commodity is different for different uses and for different customers. It is called price discrimination when a monopolist sells his goods at different prices. High prices with more or less constant demand (being inelastic) suggest high overall revenues. Low price means large sales and, thus, large overall sales If demand is inelastic, high prices can be set. The definition of demand elasticity is of great practical significance when it comes to understanding the number of problems and formulating economic policies, such as:Ī monopolist takes into account the market elasticity when setting the price for his product (1) when the market for his product is elastic, by setting a low price, he can benefit more. Managerial applications of market elasticity of prices Importance of Demand Elasticity of Profits.Price Elasticity of Demand Managerial Use.In the following three ways, we will address the definition of demand elasticity: It helps to solve managerial issues, especially those related to pricing and production decision-making. ![]() It is important in the fields of manufacturing, trade, and commerce. From both theoretical and practical points of view, recognizing the notion of demand elasticity is highly useful in business economics. Importance of Demand Elasticity in Business Economics. Importance of Demand Elasticity in Business Economics
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