The Government can determine minimum wage policy on the basis of elasticity of demand of labour input. . The terms of trade between the two countries also depends upon the elasticity of demand of exports and imports of two countries. Price elasticity of demand Electricity 0. Income elasticity shows fluctuations in demand for goods or services as precipitated by changes in the purchasing power of consumers. Branding - Firms create differences in the minds of consumers between their product and those of other firms.
The concept of Price Elasticity of Demand helps companies maximise their profit and decide whether a particular market can be profitable. The paper will focus over the all those conditions that are directly or indirectly related to this elasticity. A suitable price policy for public utility enterprises is to charge from consumers according to their elasticity of demand for public utility. However, he would not be able to charge a high price for a commodity with elastic demand. This is because, demand being inelastic, as a result of the fall in prices, quantity demanded of the exported products will increase very little and the country would suffer because of the lower prices. When the seller sells the skin and meat, the seller keeps in mind the elasticity of demand of skin and meat. In the first case, it will be in a position to charge a high price for its products and in the latter case it will be paying less for the goods obtained from the other country.
This is important as it helps the organization decide on the best course of action. Since the demand is inelastic, prices of farm products fall sharply as a result of large increase in their supply in the year of bumper crops. Joint Products: The concept of elasticity of demand plays an important role in determining the price of joint products. It matters for existing firms looking to diversity, or be concerned about the prospects for the future in the area they produce and sell in. Distribution aspect of business The distribution aspect of business is very complex. Inventory — Businesses with plenty of stock can increase supply easily. The closer the substitutes for a certain product or service exist as well as the amount, the greater the price of the elasticity demanded will be.
Sometimes, the relationship of price and d … emand is complicated:. Under these circumstances the demand both for its exports and imports turns out to be inelastic. If cross elasticity of demand is infinite, in that case there is perfect competition in the market. Importance in international trade: The concept of elasticity of demand is of crucial importance in many aspects of international trade. Maximum profit does not necessarily result from selling goods at the highest possible profit margins.
Succession: The change in non-living and living factors in ecosystem. They may reduce their consumption of some other non-taxed or taxed at lower rates goods which happen to be health giving and nutritious, such as milk, cereals and vegetables. Tobacco is generally price inelastic as it is an addictive substance. Remember, price elasticities are negative. As a result, huge amount of cotton as well as cotton seeds have been produced. In some agricultural markets, momentary supply is fixed and is determined mainly by planting decisions made months before, and climatic conditions that affect production yield. Business supplies services Services occupy an important place in business life.
Therefore, in the interest of general public, the government owns and runs such services. The relationship between price elasticity and total revenue is important. Otherwise, it may cause unemployment among workers due to restricted production as a result of fall in demand at consequent high price of the product. Sales policy in super market In super market sales policy is determined on the basis of elasticity of demand. It plays vital role in other business procedures too.
Among them, price elasticity of demand is one of the most common types and is also the most relevant to business. He further asserts that this can be highly evident during economic recessionary periods. Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to ambiguity. The policy of devaluation would be benificial when demand for exports and imports is price-elastic. Words: 1872 - Pages: 8.
Many business owners actually end up selling their products at a loss without even knowing it. In the Determination of Output Level 2. Business firms also realize that they can charge higher prices with a limited reduction in demand only in the short run. The firms make business decisions using the concept of income elasticity. Finance, banking and insurance greaUy contribute in the financing of business. A monopolist can fix the price only on the basis of elasticity of demand.