Elasticity’s effect on pricing policy can be profound and far reaching. A poorly thought out price increase can drive profit down considerably. Likewise, a price cut might drive demand up to a level that the business cannot keep pace with thus disappointing customers.
(A) What factors need to be considered in making price changes for a product or service that shows an elastic price response?
(B) What factors need to be considered in making price changes for a product or service that shows a unit elastic price response?
(C) How might a business handle dramatic price increase for products and services that are inelastic in response?