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What is the importanve of elasticity of demand . |
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Answer» Solution :The practical IMPORTANCE of `P.e_(D)` can be made clear with the help of following point., 1. Importance for a producer if demand for his product is inelastic, he will keep price high to earn maximum profit. if dd is elastic, he would fix a lower price. 2. Improtance to a monopolist The CONSUMERS for whom deamand is inelastic, can be charged a higher price. the consumers for whom dd is elastic , can be charged relatively lower price. 3. Importance for formulating govt, policies. Government can impose higer taxes on goods with inelastic dd ( specially for RICH class so that burdento taxation falls on this class) low rate of taxes can be IMPOSED on commodities which have elastic demand. 4. Useful in determination of factor pricing The factors having inelastic demand can obtain a higher price. Factors having elastic having elastic demand can obtain lower price. 5. Useful in international trade If demand for the good in other countries is inelastic, higher price can be fixed, If demand for the good in other countires is elastic the exporting COUNTRY will have to fix lower price. |
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