Discuss whether knowledge  of price elasticity of demand is of use to a company selling things with different price elasticities of demand.

Expert Answers

An illustration of the letter 'A' in a speech bubbles

A knowledge of price elasticity of demand is beneficial for any company to have.   The knowledge can be practical rather than theoretical.  In other words, as long as the company’s decision makers understand the concept in practice, they do not need to know the term “price elasticity of demand.”  However, if they have no knowledge of the idea at all, they will harm themselves economically.

If you do not know about price elasticity of demand, you will not set the prices of your various products properly.  You might set prices too low on a good that has inelastic demand.  You might set prices too high on a good whose demand is price elastic.  In either case, you will lose yourself some money because you will not know how to determine what the optimal price is.

Proper pricing is hugely important for any firm.   Therefore, an understanding of price elasticity of demand is very important.  If the firm is selling goods with many different price elasticities, it becomes even more important because the firm has to make decisions on the prices of many goods, each of which may need a different decision made based on different levels of price elasticity of demand.

Approved by eNotes Editorial Team

We’ll help your grades soar

Start your 48-hour free trial and unlock all the summaries, Q&A, and analyses you need to get better grades now.

  • 30,000+ book summaries
  • 20% study tools discount
  • Ad-free content
  • PDF downloads
  • 300,000+ answers
  • 5-star customer support
Start your 48-Hour Free Trial