The Importance of Understanding Price Elasticity Essay - 1

The Importance of Understanding Price Elasticity - Essay shellThis elasticity is handlingd to measure how responsive the meter demanded is or how willinging the consumers atomic number 18 to buy the unwaverings product if there is a given change in price. Inelastic products, meaning products whose bar demanded would not be significantly affected by a change in price, include cigarettes and feed 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 information about their products elasticity of demand to determine their price structure and their ambition policy in the market. This information is extremely valuable for the planetary houses 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 decli ne in 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. wherefore they can afford to charge a higher price without losing too many customers. One issue 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 situation 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 finance department would be aware of the fact that they can increase potential revenue by an increase in the level of prices depending on the course of elasticity. If the value of elasticity is clos er to zero, then they can increase the