Why the concept of elasticity of demand is important to government?

Why the concept of elasticity of demand is important to government?

The concept of price elasticity of demand is important for formulating government policies, especially the taxation policy. Government can impose higher taxes on goods with inelastic demand, whereas, low rates of taxes are imposed on commodities with elastic demand.

What best describes the concept of elasticity?

Elasticity is an economics concept that measures the responsiveness of one variable to changes in another variable. The variables in this question are price and sales numbers. Elasticity explains how much one variable, say sales numbers, will change in response to another variable, like the price of the product.

What is the concept of elasticity of demand?

An elastic demand is one in which the change in quantity demanded due to a change in price is large. In other words, quantity changes faster than price. If the value is less than 1, demand is inelastic. In other words, quantity changes slower than price. If the number is equal to 1, elasticity of demand is unitary.

What is the use of elasticity in daily life?

POLYMERS AND ELASTOMERS. Rubber is so elastic in behavior that in everyday life, the term “elastic” is most often used for objects containing rubber: the waistband on a pair of underwear, for instance.

What is the importance of elasticity of supply to producer?

The elasticity of supply measures the responsiveness of a change in quantity supplied to a change in price. If price increases – firms generally find it more profitable to supply a good. So an increase in price leads to higher supply.

What are the uses of the concepts of elasticity in demand analysis?

The concept of elasticity for demand is of great importance for determining prices of various factors of production. Factors of production are paid according to their elasticity of demand. In other words, if the demand of a factor is inelastic, its price will be high and if it is elastic, its price will be low.

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

How does the concept of elasticity allow us to improve upon our understanding of supply and demand? Elasticity allows us to analyze supply and demand with greater precision than would be in the case in the absence of the elasticity concept. consumers to buy less of the good as price rises. The good is a necessity.

Who introduced the concept of elasticity?

Alfred Marshall
Together with the concept of an economic “elasticity” coefficient, Alfred Marshall is credited with defining “elasticity of demand” in Principles of Economics, published in 1890. Alfred Marshall invented price elasticity of demand only four years after he had invented the concept of elasticity.

Why is it important to understand whether supply is inelastic?

Importance of inelastic supply House prices more than doubled because supply was price inelastic. Despite rising demand and rising prices, there was only a moderate increase in supply. High prices. If supply is inelastic, it may be easier for firms to put up prices.

How will you apply the concept of elasticity to make more profits?

When the price is on an inelastic portion of the demand, then elasticity correctly guides the manager to choose higher prices which result in higher revenues and higher profits.