Importance of Concept of Elasticity of Demand:

1. To a Producer : It helps the producer to decide the price for his product. If the demand for his product is relatively inelastic, he will fix higher price and vice versa.

2. To Government : In order to raise additional revenue by means of new taxes like excise duties on commodities Govt, has to keep in mind the elasticity of demand for a commodity. So a high tax can be imposed on commodities like petrol or cigarettes, the demand for which is relatively inelastic.

3. In International Trade : If the foreign demand for exportable products of a country is relatively elastic, its export will rise much after a slight reduction in their prices. But if foreign demand is relatively inelastic, the exporters can raise their prices without much fall in exports.

4. Trade Union : Knowledge of elasticity of demand can help the trade union in wage bargaining. They can ask the employees to pay higher wages to the workers by changing the price policy of their product. If the demand for the product produced by them is inelastic then the trade unionist may suggest the employer to raise the price, so as to earn higher profit. Which then can be used to pay higher wages.

5. Public Utility Services : It is the Government who takes the decision to distribute certain essential goods and services, which have inelastic demand. For eg. Indian Railways, bank service, water supply, etc. If such services are left to private sector they will exploit the consumers by charging high prices.

6. Devaluation : Devaluation measure is adopted by the government to promote exports and correct deficit in the balance of payment. Devaluation makes our goods cheaper in the foreign market. However, devaluation is successful only if exports have elastic demand.

7. Factor Pricing: It is helpful in determining the prices of various factors of production like rent for land, wages or salary for labour, interest for capital, etc.