Decision making is affected by elasticity

A monopolist while fixing the price of the market has to determine whether its product is of elastic or inelastic nature. For example, a consumer soap manufacturer may find that its products also sell well among workers in plants and factories. Price discrimination refers to the act of selling the technically same products at different prices to different section of consumers or in different in sub-markets.

This formula may yield either a positive or negative elasticity.

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Price elasticity of demand can be used to answer the following types of questions: The fall in the income or revenue of the farmers as a result of the bumper crop is due to the fact that with greater supply the prices of the crops decline drastically and in the context of inelastic demand for them, the total expenditure on the crop output declines, bringing about fall in the incomes of the farmers.

At that minimum price the Government should be prepared to buy the crop from the farmers. Governments of many countries, especially the United Decision making is affected by elasticity of America provide subsidies per unit of the products produced to the farmers to Decision making is affected by elasticity them incentives to produce more as due to inelastic nature of demand for farm products more production causes such a steep fall in the prices of farm products that leads to the decrease in incomes of farmers.

This paradox of poverty is the basis of regulation and control of farm products prices. Prices changes in a product or service — either up or down — will influence the opportunity cost to consumers.

If the monopolist who produces tablet, set high price of its product, he may not be able to sell its products. One way to accomplish this is to provide new features, flavors or fragrances for the products while keeping prices the same.

Every significant development in the study of consumer decision-making — and every aspect of the process — are of great interest to the businesses community. Thus, the policy adopted is to charge a slightly lower price for items whose demand is relatively elastic and the costs are covered by increased sales.

In other words, inferior goods are such goods whose demand falls with the rise in income and vice versa e. When a tax is imposed on a commodity, its price will rise.

Coefficients of Elasticity A coefficient is a metric that expresses the income elasticity of demand for a particular product or service. Small food companies may need to lower prices to compete with generic brands, items consumers often buy during tough economic periods.

Conversely, if the price declines, demand goes up. In this way, we saw that the same product can be elastic in one market and inelastic on the other. By setting a high price for cotton inelastic product and low price for cotton seeds elastic productthe business can maximize its revenue.

Now, if the demand for the commodity is elastic, the rise in price caused by the tax will bring about a large decline in the quantity demanded and as a result the Government revenue will decline rather than increase.Uses of Price Elasticity of Demand in Business Decision Making January 6, By Shraddha Bajracharya Elasticity of demand is the sensitivity of quantity demanded of a commodity in response to the change in factors related to that commodity.

Price Elasticity Of Demand Affects The Decision Making Of The Consumer Supply, Demand and Price Elasticity People and companies make economic decisions on a daily basis by deciding how much of something they will buy and what prices they are willing to pay for the goods or services.

The business firms take into account the price elasticity of demand when they take decisions regarding pricing of the goods.

The Importance of Income Elasticity in Decision Making

This is because change in the price of a product will bring about a change in the quantity demanded depending upon the coeffi­cient of price elasticity. Hence, companies need to center their marketing strategies and decision making around the statuses of consumers' incomes.

Types of Products Certain types of products are more affected by income. Decision making is intrinsic in the society no matter if it is a crucial decision or not Many models and theories have been recommended to analyze how humans make choices both individually and also in groups such as organizations.

12 Importance of Price Elasticity of Demand – Explained! From the above discussion it is amply clear that price elasticity of demand is of great significance in making business decisions. Home ›› the Price Elasticity of Demand Depends ; 5 Types Of Degrees Of Elasticity Of Demand – Explained!

9 Main Determinants of Price.

Decision making is affected by elasticity
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