--%>

Illustrates the significance of elasticity

Illustrates the significance of elasticity?

E

Expert

Verified

Significance of Elasticity is explained here with some important points:

The perception of elasticity of demand is more of practical importance:

1. Production: Producers usually decide their production level on the origin of demand for their product. Therefore elasticity of demand helps to fix the level of output.

2. Price fixation: Each seller under monopoly and imperfect competition has to take in account the elasticity of demand whereas fixing their price. When the demand for the product is inelastic then he can fix a higher price.

3. Distribution: Elasticity assists in the determination of rewards for factors of production. For illustration, when the demand for labour is inelastic, trade union can increase wages.

4. International trade: This perception helps in determining the terms of trade among two countries.
Terms of trade, means rate at that domestic commodity is exchanged for foreign commodities.

5. Public finance: It assists the government in formulating tax policies. To impose tax on a commodity, the government must take in consideration the demand elasticity.

6. Nationalization: Elasticity of demand assists the government to decide regarding nationalization of industries.

7. Price discrimination: A manufacture can fix a higher price for the product that have inelastic demand and lower price for product that have elastic demand.

8. Others: The notion elasticity of demand also assisting in taking other vital decision for example: finding out the price of joint product and take over decision.

   Related Questions in Managerial Economics

  • Q : Competitive Profit Maximization in

    A profit-maximizing competitive firm hiring by a competitive labor market will be within equilibrium where is: (w) MPP = MRC. (x) w = MRC. (y) VMP = MPP. (z) VMP = w. Hey friends please give your o

  • Q : Boom - Phases of business cycle Explain

    Explain about the term Boom in phases of business cycle.

  • Q : Moral Hazard and Efficiency Wages

    Firing a worker who regularly goods off and calls in sick may not resolve the moral hazard problem of shirking when: (w) there is a high probability which the worker will sue the firm. (x) the local unemployment rate is high. (y) average worker productivity is low. (z

  • Q : What are the Methods of Demand

    What are the Methods of Demand Forecasting?

  • Q : Marginal Product of Labor in Firm If

    If this firm maximizes profit, this will be producing under circumstances of: (1) increasing returns to labor. (2) economies of scale. (3) diminishing returns to labor. (4) constant returns to labor. (5) adverse selection and moral hazard.

    Q : Economic Efficiency to make one person

    When an economic alteration makes one person better off whereas no one else is affected, then this is: (w) efficient to make the change. (x) traumatic to make the change. (y) neither good nor bad for society. (z) strictly a positive value judgment to

  • Q : Decline in equilibrium marginal revenue

    Declines within the equilibrium marginal revenue product of a firm’s workers are probably to follow the adjustments to: (1) increases in specific training. (2) decreases in the wage rate. (3) increases in the demand for output. (4) hikes in the

  • Q : Income effect by personal supply of

    A personal supply of labor is exemplified by an income effect which dominates the substitution effect if: (w) Trina retires to a beach condo after working for the city for 42 years. (x) members of a rock band give up touring for a yea

  • Q : Explain about input output table method

    Explain about input output table method.

  • Q : Pure economic rents Pure economic rents

    Pure economic rents for different parcels of land do not reflect differences within their: (1) marginal productivities. (2) fertility. (3) quantities of valuable minerals and ores. (4) amounts of capital improvements. (5) relative capability to reduce