The concept of elasticity for demand is importance for determining the prices of various factors of production. Discuss the various factors that influences the price elasticity of demand
Answers
Answer:
The following points highlight the ten main areas of importance of elasticity of demand in management. Some of the areas are: 1. In the Determination of Output Level 2. In the Determination of Price 3. In Price Discrimination by Monopolist 4. In Price Determination of Factors of Production 5. In Demand Forecasting 6. In Dumping 7. In the Determination of Prices of Joint Products and Other.
Area # 1. In the Determination of Output Level:
For making production profitable, it is essential that the quantity of goods and services should be produced corresponding to the demand for that product. Since the changes in demand is due to the change in price, the knowledge of elasticity of demand is necessary for determining the output level.
Area # 2. In the Determination of Price:
The elasticity of demand for a product is the basis of its price determination. The ratio in which the demand for a product will fall with the rise in its price and vice versa can be known with the knowledge of elasticity of demand