The Importance of Understanding Price Elasticity Essay - 1

The Importance of Understanding Price Elasticity - Essay ExampleThis elasticity is used to measure how responsive the quantity demanded is or how bequeathing the consumers are to buy the unshakables product if in that respect is a given change in price. Inelastic products, meaning products whose quantity demanded would non be signifi bottomlandtly affect by a change in price, include cigarettes and food items. Whereas elastic products, meaning products whose quantity demanded would be significantly affected by a change in its price, include iPod, MP3, television and other such consumer items considered a luxury or a want.Firms can use education about their products elasticity of demand to determine their price structure and their competition policy in the market. This information is extremely valuable for the firms marketing department as it allows them to determine if the people will continue buying their product if the price is increased or will there be a dramatic decline i n the sales. For example if the demand is inelastic for a cigarette company then its marketing department will know that there wont be a significant decrease in the quantity demanded by the customers to an increase in price. Hence they can afford to charge a higher price without losing too many customers. One thing that needs to be noted here is that when the price of a product is relatively inelastic, a firms revenue would rise because of the fact that an increase in price which not reduce quantity demanded significantly thus their revenues would rise. On the other hand, had the demand for that product been elastic, they would be losing revenue because quantity demanded would fall. Here, cigarettes are considered to be a relatively inelastic, hence the marketing and the pay department would be aware of the fact that they can increase potential revenue by an increase in the level of prices depending on the degree of elasticity. If the rate of elasticity is closer to zero, then the y can increase the