We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Practical Application of Price Elasticity and Income Elasticity of Demand Essay Sample

  • Pages: 3
  • Word count: 555
  • Rewriting Possibility: 99% (excellent)
  • Category: demand

Get Full Essay

Get access to this section to get all help you need with your essay and educational issues.

Get Access

Introduction of TOPIC

Practical application of price elasticity of demand is as follows:

•Production planning – It helps the producer to decide about the volume of production. If the demand for his products is inelastic, specific quantities can be produced while he has to produce different quantities if the demand is elastic. •Helps in fixing the prices of different goods – It helps a producer to fix his price of his product. If the demand of his product is inelastic he can fix a higher price and if the demand is elastic he has to charge a lower price. Thus price increase policy is to be followed if the demand is inelastic in the market and price decrease policy is to be followed if the price is elastic. •Helps in fixing the rewards for factor inputs – Factor rewards refer to price paid for their services in production process. If the demand for any product is elastic then the producer needs to pay higher reward for it and vice versa.

•Helps determine foreign exchange rates – Exchange rate refers to the rate at which currency is converted into the currency of other country. Helps exchange between two countries,.

Helps determining the terms of trade – It is the basis of deciding the terms of trade between

Sorry, but full essay samples are available only for registered users

Choose a Membership Plan
two nations. The terms of trade implies the rate at which domestic goods are being exchanged for foreign goods. •Helps in fixing the rate of taxes -Taxes are compulsory for every citizen which should be paid periodically without expecting any direct benefit from it. We can determine the taxes of the product as per its elasticity in the market. •Helps in declaration of public utilities – Public utilities are those institutions which provide essential goods to general public at economic prices. The govt may declare a particular industry as public utility or nationalize it if the demand for its products is inelastic. •Poverty in the midst of plenty – The concept explains the paradox of poverty in the midst of plenty. A bumper crop like rice may bring in poverty instead of prosperity as the product is inelastic.

Practical application of income elasticity of demand is as follows:

•Helps in determining the rate of growth of a firm – if the growth rate of the economy and growth income of people is reasonably forecasted we can predict the expected increase in sales of a firm and vice-versa. •Helps in demand forecasting of a firm – It can be used in estimating future demand provided that the rate of increase in income and the increase for demand are known. Hence it helps in forecasting activities of a firm. •Helps in planning and marketing – The knowledge of income elasticity of demand is essential for production planning, formulating market strategy, deciding advertising expenditure and nature of distribution channel in the long run. •Helps in sustaining stability in production – Proper estimation of different degrees of income elasticity for different types of products helps avoiding over production or under production of a firm. One should also know if the rise or fall of income is temporary or permanent. •Helps in estimating construction of houses – Increase in income also helps housing programmes in the country.

We can write a custom essay on

Practical Application of Price Elasticity and Inco ...
According to Your Specific Requirements.

Order an essay

You May Also Find These Documents Helpful

Elasticity of Supply and Demand

The field of economics has this huge focus on the concepts of supply and demand.. Along with them is the concept of elasticity. Elasticity of supply and demand refers to the responsiveness of buyers to the changes in prices ("Elasticity of Demand and Supply," 2007a). They are also often referred to as price elasticities o demand and supply. In mathematical approaches, the elasticity of demand and supply is given by these equations: Elasticity could also come in many forms. Demand and supply can be elastic, inelastic, and unit elastic. A perfectly elastic demand suggests that a small change in price would trigger a huge change in the demand. On the other hand, if the price elasticity of the demand is said to be inelastic or the elasticity is equal to zero, it means that any change in price would have no effect in the change of the quantity demanded. It...

Demand Curve

The demand curve is flatter (more horizontal) the closer the substitutes for the product and the less diminishing marginal utility is at work for the buyers. •The dependent variable in demand analysis is the quantity (the number of units) sold. The independent variables are price, income of buyers, the price of substitutes, and the price of complements. •An increase in income shifts the demand curve to the right for normal good. It goes to the left for an inferior good. •An increase in the price of a substitute product shifts the demand curve to the right. Consider an increase in the price of bagels; bagel buyers shift along their demand curve to buy less bagels and substitute toward bread, shifting the demand curve for bread to the right at every price. •An increase in the price of a complement shifts the demand curve to the left. When the price of...

Fresh Direct

1.How is it possible, as Braddock noted, to have a great deal of data but little information? How does the SAP database and business intelligence component change this? Fresh Direct is a New York online grocery firm aiming to offer higher quality food with the best price which is 10-15% less than the local competitors and home delivery. The Fresh Direct has 300,000-square-foot headquarter and 1,500 employees. 8,500 products and 200,000 customers active in every day transaction. So every second there will be numerous data flowing into the company’s center. But the company lacks of a significant information system to deal with those data. They tried to use technology to convert the data to reports of real time information in order to help managers look deeply into the field and react quickly to the customers. But the reports cannot give meaningful information from the data. They didn’t have system in...

Popular Essays


Emma Taylor


Hi there!
Would you like to get such a paper?
How about getting a customized one?