elasticity measurementsIf 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...

elasticity measurements

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?   

Expert Answers
Karen P.L. Hardison eNotes educator| Certified Educator

Price demand elasticity coefficients measure consumer sensitivity to changes in price, or, more simply, price sensitivity. If a product has elastic price sensitivity, then quantity demanded shifts with price changes in an inverse relationship: price declines ==> quantity demanded rises. Pricing policy will specify low prices within optimal cost parameters.

http://www2.sunysuffolk.edu/tveliag/Elasticity.pdf

justaguide eNotes educator| Certified Educator

As the elasticity of demand for a product decreases, a company can increase the price with a smaller reduction in the demand. This leads to an increase in the sales revenue. On the other hand as the elasticity of demand increases things become more difficult for companies. They can no longer increase prices and expect the same number of people to buy the product. A price increase leads to a fall in sales revenue.

accessteacher eNotes educator| Certified Educator

Elasticity in this context relates to the demand for products that a company might produce. If a product has a high elasticity, then the demand for that product will fluctuate. If a product is inelastic then the demand for that product is constant. This means that inelastic products are able to be raised in terms of their price, whereas the price of elastic products will have to fluctuate.

litteacher8 eNotes educator| Certified Educator
I think the point is that if a company has a product that is more elastic, the company needs to pay more attention to the product's demands and price, and be ready to respond at any time. If the product is inelastic, there is not such an urgent need to keep tabs.
pohnpei397 eNotes educator| Certified Educator

The more inelastic demand is for the firm's products, the more it should raise its prices.  If demand is elastic, it should reduce prices.  If demand is unit elastic, then it really does not much matter what price the firm charges.