Business use + Limitations for Elasticities

• Price elasticity of demand is important for businesses when making pricing decisions to increase total revenue.
• If a business knows that demand for its product is price elastic, it should reduce the price to increase total revenue.
• If demand is price inelastic, the business should raise their price to increase total revenue.
• Price elasticity of supply is crucial for a business because it determines how flexible production can be.
• Businesses can make supply as price elastic as possible by reducing production, increasing stocks, or increasing the level of spare capacity.
• Exedy tells us whether goods are complements or substitutes and how strongly related they are, which can be very important for pricing decisions.
• If goods are complements, a business can reduce the price of one good and increase the price of the other.
• If goods are substitutes, a business can reduce its price to get ahead of its rival.
• Non-price competition is important for businesses as it can avoid price wars and reduce the substitute nature of goods.
• Elasticity figures assume that only one factor will affect quantity demanded, such as price or income.
• If a business is producing an inferior good and a recession is coming, it may consider increasing its output to maintain or increase its sales.
• Responsiveness of quantity demanded given a change in income is crucial in business planning for booms and recessions.
• PD varies along the demand curve, meaning a business cannot keep changing the price by the same amount and expecting the same impact on quantity demanded.
• The kind of good being produced, whether it's a normal good or an inferior good, is also important in business planning.
• If a business is producing a normal good and a boom is coming, it may consider raising its price to increase revenues and profits.
• Elasticity calculations and figures are only estimates and can be inaccurate due to the way data is collected through surveys.