How is price elasticity of demand useful to the producers?
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Answer:
Price Elasticity is all about substitutability. The MORE substitutes a product has the more ELASTIC it is. The LESS substitutes a product has the more INELASTIC it is. For example if there’s a shortage of Kale and the price goes through the roof people will buy a lot less and switch to Romaine Lettuce, or Arugula, or Spinach, etc. Therefore profitability of Kale industries will decline. Likewise if the price of insulin goes through the roof people will still generally buy the same amount otherwise they will die. This is because as of now their aren’t really any substitutes for it so people don’t have a choice in the matter. Because Insulin is Inelastic a company selling it can increase price and therefore increase profitability. However Kale is Elastic (again meaning there are many substitutes). A price increase in Kale will not be profitable…it will actually hurt the industry. But a price decrease will incentivize people who were buying the substitutes to switch over to Kale and hence increase the profitability.
Explanation: