PRICE ELASTICITY OF DEMAND IN VARIOUS CONTEXTS

SAMUEL ANURAG PRABHU B

1628823
1MBA (FM)
MANAGERIAL ECONOMICS CIA 3

What amount of price should be changed to increase our revenue?

The fundamental law of demand does not help us to answer this question. Then again it is
essential for a business manager to know the definite or the most likely change in our income.
It is more imperative for public managers to know which arrangements might help them
increase or decrease demand of specific goods and services.
The economists like to translate this concept price elasticity of demand with the term
Ed to separate from price elasticity of supply'. They neither measure change of price in
currency nor change of quantity in weights. They utilize distinctive strategies to measure
price elasticity of demand including percentage, total consumption/expenditure and graphic.
In any case, the most used method, i.e. percentage utilizes percentage of change to
calculate elasticity of demand
It is critical for open directors and additionally the farming business to choose what
sort of harvests might help their income. A crossover seed may deliver surplus to
diminish the demand and price of the item. In the event that everybody pulls out all
the stops, the administration would need to change its farming strategies in like
manner to keep up a sound rivalry.
Each government cries against smoking. People in general administrators confine the
general population spots to stop it. Verging on each pack of cigarette contains some
image or photograph to make smoking offensive for the viewers. Be that as it may, the
most extreme effect is brought by enormous tax collection. The general population
chiefs see the inelasticity in the interest of cigarettes so they think that its helpful to
raise enormous charges. A few people ( maybe smokers?) assert that half of the
instructive establishments and doctor's facility utilities are running on the charges on
utilization of tobacco. Generally Singapore can effectively boycott utilization of bite
gum inside the nation.

 Numerous legislatures like Pakistan fix costs of key items to make them open to the
poorest segment of the general public. It is another contention whether it is valuable
or not but rather unmistakably value versatility of interest can help us to choose also
helpful for the business and additionally the purchasers.
Estimation of value flexibility of interest helps the general population administrators
to settle least wages to make it advantageous for both.
We have been watching long lines at service stations because of restricted common
supply, impromptu gas construct drive in light of streets and flexibility to introduce
CNG corner stores anyplace. The value versatility of interest and supply may have
worked for the circumstance. However, extreme the August court of the nation needed
to intercede.
The Excise office can raise more income by offering 'vanity number plates' to the
buyers.
The price elasticity of demand helps the monopolist most to fix prices of the products
which are inelastic or relatively inelastic to maximize his profits.
The price elasticity of demand also helps us to see what substitutes can reduce
demand of a competitive product.
Price elasticity of demand can be used as an indicator of industry health, future consumption
patterns and as a guide to firms investment decisions. Effect of international trade and terms
of trade. Analysis of consumption and saving behaviour. Analysis of advertising on consumer
demand for particular goods
How is a Price Elasticity of Demand of a good influenced by availability of its close
substitute?
Number of substitutes of a good: Demand for goods which have close substitutes (like tea
and coffee) is relatively more elastic. Because, when price of such a good rises, the
consumers have the option of shifting to its substitute. Goods without close substitutes like
cigarettes etc are generally found to be less elastic or inelastic in demand.
Explain any two factors that affect Price Elasticity of Demand.
Number of substitutes of a good: Demand for goods which have close substitutes (like
tea and coffee) is relatively more elastic. Because, when price of such a good rises,
the consumers have the option of shifting to its substitute. Goods without close

substitutes like cigarettes etc are generally found to be less elastic or inelastic in
demand.
Proportion of income spent on the goods: On which consumers spend a small
proportion of their income (toothpaste, needles, etc) will have an inelastic demand.
On the other hand, goods on which the consumers spend a large proportion of their
income (cloth, television, etc) tend to have elastic demand.