Sunday, 28 September 2014

Why is price elasticity of demand important in modern business?

The price
elasticity of demand is an economic concept that describes the change in demand that accompanies
a change in price. If a good has an elastic demand, consumers will not be willing to purchase as
much of it if its price rises. On the other hand, if a good or service has an inelastic demand,
people will continue buying it at higher prices, probably because they need it.


Understanding, and being responsive to, demand elasticity is important for businesses
at any time, and especially if they are in a highly competitive economic sector. If, for
example, a property manager or owner calculates that she can rent apartments at $1,000 a unit
when, in fact, few are willing to rent at that price, then she will have to lower the rent and
may lose her investment in the process with the resulting falling revenues. She failed to
account, in short, for the elasticity of housing demand.

So, understanding
the principle of price elasticity of demand is important to businesses in pricing the goods and
services they offer.

href="https://www.investopedia.com/terms/p/priceelasticity.asp">https://www.investopedia.com/terms/p/priceelasticity.asp

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