Price elasticity of demand in making economic decisions

Price discrimination with a view to increasing total revenue by charging a higher price in the relatively price inelastic (or low elastic demand) market and a lower price in the elastic demand market.
Government’s indirect tax policy with a view to either raising revenue or discouraging consumption – effective only where demand is inelastic (relatively less elastic) and elastic (highly elastic) respectively.
Tax shifting by producers (suppliers) – where demand is inelastic suppliers are able to shift a greater portion of the tax burden to the consumer in form of higher prices than when demand is relatively elastic such that more of the tax burden is absorbed by the supplier.
Devaluation policy, which is only effective in encouraging exports while discouraging imports (by making exports cheaper and imports expensive) where the demand for both imports and exports is highly price elastic.

(Visited 23 times, 1 visits today)
Share this:

Written by 

Leave a Reply

Your email address will not be published. Required fields are marked *