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Discuss the importance of considering elasticity in pricing decisions and the danger of relying solely on...

Discuss the importance of considering elasticity in pricing decisions and the danger of relying solely on costs.

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Answer #1

Price elasticity is very crucial in making pricing decisions. If the elasticity is high it means consumers are very sensitive to the price of a commodity and therefore will purchase much less of the product if the price is increased and demand more I the price goes low.
Explanation:
On the other hand, if the elasticity is low the consumer's demand for the product will not be affected a great deal by any changes in price. A firm that uses price elasticity will be able to know if it will achieve its objectives by any changes in the price.
A firm that relies solely on making pricing decisions will find itself being driven out of the market by the competitors. The competitors might be selling at the same price but spending less on producing the product hence making more profits. The competitor might use this advantage to edge out the firm that uses cost alone to make pricing decisions.

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