Question

What is the importance of price elasticity.

Answer 1

Price elasticity measures the change in the quantity demanded when prices are changed. So price elasticity helps determining the pricing decisions by firms, government and others.

importance:

a) Helpful for setting price of export goods: In this case exporters may set high price for inelastic goods and vice versa so this results in higher revenues and higher sales for exporters.

b) Government policies decision: This helps the government to raise taxes on goods where demand is inelastic , so this would enable government to collect higher tax revenue.

c) Very important for pricing of factors of production: This enables price discovery for the payment of factors of production.

the above are answers