Elasticity is a measurement of how much a change in price of a product or service will affect a change in the quantity demanded or supplied of that same product or service. The product or service can be unit elastic, inelastic, or elastic. The unit elastic response moves exactly in the direction of and in proportion to the change in price as would generally be the case with clothing. An inelastic response is one in which the change in quantity demanded or supplied is less than one-to-one as would the case with medication. An elastic response to a price change is one in which the change in quantity demanded or supplied is greater than one-to-one as would be the case with luxury goods.
(A) Why is the concept of elasticity useful to a business?
(B) What benefit can a business derive from an understanding of elastic?
(C) If the elasticity measurement indicates unit elastic response, what affect does this have on the firm’s pricing policies? If the elastic measurement indicates an inelastic response, what affect does this have on the firm’s pricing policies? If the elasticity measurement indicates an elastic response what affect does this have on the firm’s pricing policies?