How might knowledge of price elasticity of demand be of use to a producer?

Producers use price elasticity of demand in order to best determine the price of a product. Products should not be priced too low as the producer will not be able to cover his/her own costs, and products should not carry too high of a price that would scare away the consumer.

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Producers use price elasticity of demand in order to determine the optimal selling prices for their products. If a good carries too high of a price, one may either go with a different company for a similar good, buy a substitute, or go without the product.

A producer who is in competition with another company may be able to lower one's prices through more efficient work practices or finding cheaper sources of raw materials. As the price for the good decreases, demand should increase if demand for the product is elastic. If the demand increases at a higher rate than the price change, then the product is said to have an elastic demand. Food and discounted clothes are said to have elastic demands since customers are always looking for a sale where they can stock up on these goods. If the demand does not increase at a higher rate than the price change, demand for the good is said to be inelastic. Utility costs are often inelastic in demand since the demand does not increase or decrease with...

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Last Updated by eNotes Editorial on June 22, 2020