What is the importance of elasticity of demand and supply?

Answer 1

Elasticity of demand to firms are important because they represent the nature of the goods they are dealing in.

For example if a firm produces goods with inelastic demand they will be able to earn high profits because even if they increase the price of the goods, since the change in demand will be less than the change in price. Also if there is a tax they will share less of the burden. This means they can keep prices high and not have to worry about a lot of things.

However, if a firm were to produce goods with elastic demand, then they will have to make sure the price of the good remains low and if there is a tax they will be the ones who share the majority of the burden.

Answer 2

It will help the firm determine whether an increase in the price of their good will increase or decrease total revenue.

If demand is elastic, then an increase in price will lead to a more than proportionate decrease in quantity demanded. Therefore increasing the price for a good with elastic demand will decrease total revenue for the firm

If demand is inelastic, then an increase in price will lead to a less than proportionate decrease in quantity demanded. Therefore increasing the price for a goods with inelastic demand will increase total revenue for the firm

Answer 3

Priceelasticity of demand for a taxed product plays key role in determining the impact of tax increase on government revenue. The more inelastic the demand for the product, the smaller the impact of any given lump-sum tax on the quantity of the product purchased, therefore the greater the government tax-take. (tax-take = tax per unit x quantity purchased)

Answer 4

Price elasticity of demand is important because it determines how much the price of a product can change before the demand fluctuates. If a product is inelastic, that means that a change in price of the product will likely not affect the consumer's demand of the product drastically. But if the product were elastic, a small price change may drastically affect consumer demand.

Answer 5

It would be important to the firm to know if their products are elastic or inelastic. If their product in inelastic, they can raise prices and sell about the same amount. This creates more revenue.

Answer 6

If demand is inelastic then quantity demanded does not react strongly to price changes. Revenue of a firm (or even tax revenue) depends on quantity sold and amount received per unit (price or tax rate). Thus if demand is largely inelastic, then the firm can increase the price and the quantity sold will not suffer. Thus revenue increases. If demand is largely elastic then increasing the price may actually cause a decrease in revenue. As price increases, quantity demanded/sold decreases. Since R=PQ, revenue can decrease because the decrease in Q outweighs the increase in P. The price flexibility a firm has depends on the elasticity of demand.

Answer 7

if you mean indecisiveness, then yes there is to some extent a point when you have to decide, and once the "elastic" is broken, there is no going back.

Answer 8

the price