{"id":11040,"date":"2021-11-13T19:11:08","date_gmt":"2021-11-13T13:41:08","guid":{"rendered":"https:\/\/scholarsclasses.com\/blog\/?p=11040"},"modified":"2024-12-24T15:01:32","modified_gmt":"2024-12-24T09:31:32","slug":"importance-of-elasticity-of-demand","status":"publish","type":"post","link":"https:\/\/scholarsclasses.com\/blog\/importance-of-elasticity-of-demand\/","title":{"rendered":"6 Importance of Elasticity of Demand | Free Economic Blogs"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69e9d987865fc\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69e9d987865fc\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/scholarsclasses.com\/blog\/importance-of-elasticity-of-demand\/#Importance_of_Elasticity_of_Demand\" >Importance of Elasticity of Demand<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/scholarsclasses.com\/blog\/importance-of-elasticity-of-demand\/#Concept_of_Elasticity_of_Demand\" >Concept of Elasticity of Demand<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/scholarsclasses.com\/blog\/importance-of-elasticity-of-demand\/#Importance_of_Elasticity_of_Demand-2\" >Importance of Elasticity of Demand<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/scholarsclasses.com\/blog\/importance-of-elasticity-of-demand\/#1_Importance_to_a_Producer\" >1) Importance to a Producer<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/scholarsclasses.com\/blog\/importance-of-elasticity-of-demand\/#2_Importance_to_Government\" >2) Importance to Government<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/scholarsclasses.com\/blog\/importance-of-elasticity-of-demand\/#3_Important_in_Factor_Pricing\" >3) Important in Factor Pricing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/scholarsclasses.com\/blog\/importance-of-elasticity-of-demand\/#4_Importance_in_Foreign_Trade\" >4) Importance in Foreign Trade<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/scholarsclasses.com\/blog\/importance-of-elasticity-of-demand\/#5_Public_Utilities\" >5) Public Utilities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/scholarsclasses.com\/blog\/importance-of-elasticity-of-demand\/#6_Proportion_of_expenditure\" >6) Proportion of expenditure<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading has-text-align-center has-black-color has-text-color\"><span class=\"ez-toc-section\" id=\"Importance_of_Elasticity_of_Demand\"><\/span>Importance of Elasticity of Demand<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image size-large is-resized\"><img decoding=\"async\" width=\"1024\" height=\"576\" data-src=\"https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Importance-of-Elasticity-of-Demand-1024x576.jpg\" alt=\"Importance of Elasticity of Demand\" class=\"wp-image-11059 lazyload\" style=\"--smush-placeholder-width: 1024px; --smush-placeholder-aspect-ratio: 1024\/576;width:768px;height:auto\" title=\"\" data-srcset=\"https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Importance-of-Elasticity-of-Demand-1024x576.jpg 1024w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Importance-of-Elasticity-of-Demand-300x169.jpg 300w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Importance-of-Elasticity-of-Demand-768x432.jpg 768w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Importance-of-Elasticity-of-Demand-1536x864.jpg 1536w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Importance-of-Elasticity-of-Demand-640x360.jpg 640w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Importance-of-Elasticity-of-Demand.jpg 1920w\" data-sizes=\"(max-width: 1024px) 100vw, 1024px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" \/><figcaption class=\"wp-element-caption\">Importance of Elasticity of Demand<\/figcaption><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concept_of_Elasticity_of_Demand\"><\/span>Concept of Elasticity of Demand<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The term elasticity indicates the responsiveness of one variable to a change in the other variable. The elasticity of demand refers to the degree of responsiveness of quantity <a href=\"https:\/\/www.nios.ac.in\/media\/documents\/SecEcoCour\/English\/Chapter-9.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">demanded<\/a> to a change in its price or any other factor.<\/p>\n\n\n\n<p>According to Prof. Marshall, \u201c<strong>Elasticity of demand is great or small according to the amount demanded which rises much or little for a given fall in price and quantity demanded falls much or little for a given rise in price.<\/strong>\u201d<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/microeconomic-definition\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/microeconomic-definition\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>Microeconomic Definition | Historical Review of Microeconomics<\/strong><\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/scope-of-microeconomics\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/scope-of-microeconomics\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>Scope Or Nature of Microeconomics<\/strong><\/a><\/li>\n\n\n\n<li><strong><a href=\"https:\/\/scholarsclasses.com\/blog\/features-of-microeconomics\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/features-of-microeconomics\/\" target=\"_blank\" rel=\"noreferrer noopener\">Features of Microeconomics<\/a><\/strong><\/li>\n\n\n\n<li><strong><a href=\"https:\/\/scholarsclasses.com\/blog\/importance-of-microeconomics\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/importance-of-microeconomics\/\" target=\"_blank\" rel=\"noreferrer noopener\">Importance of Microeconomics<\/a><\/strong><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Importance_of_Elasticity_of_Demand-2\"><\/span>Importance of Elasticity of Demand<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The concept of elasticity of demand is of great importance to producers, farmers, workers, and the Government. Lord Keynes considered this concept to be the most important contribution of <strong>Alfred Marshall<\/strong>. The significance of the concept becomes clear from the following applications<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1_Importance_to_a_Producer\"><\/span>1) Importance to a Producer<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>Every producer has to decide the price of his product at which he has to sell it. For this purpose, the elasticity of demand becomes important. If the demand for a product is relatively inelastic, he will fix up a higher price and vice-versa. The concept of elasticity of demand is also useful to a monopolist to practice price discrimination.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2_Importance_to_Government\"><\/span>2) Importance to Government<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The taxation policy of the Government is based on the concept of elasticity of demand. Those commodities whose demand is relatively inelastic will be taxed more because it will not affect their demand much and vice-versa.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3_Important_in_Factor_Pricing\"><\/span>3) Important in Factor Pricing<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The concept of elasticity of demand is useful in the determination of factor prices. The factor of production for which demand is relatively inelastic can command a higher<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"4_Importance_in_Foreign_Trade\"><\/span>4) Importance in Foreign Trade<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The concept of elasticity of demand is useful to determine terms and conditions in foreign trade. The countries exporting commodities for which demand is relatively inelastic can raise their prices. For example, Organization of Petroleum Exporting Countries (OPEC) has increased the price of oil several times. The concept is also useful in formulating the export and import policy of a country.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"5_Public_Utilities\"><\/span>5) Public Utilities<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>In the case of public utilities like railways which have inelastic demand, Government can either subsidise or nationalize them to avoid consumers exploitation.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"6_Proportion_of_expenditure\"><\/span>6) Proportion of expenditure<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>If the proportion of expenditure in a person&#8217;s income is small, then demand for the product is relatively inelastic. For example, newspapers. If the proportion of expenditure is large, then demand for the product is<br>relatively elastic.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><a href=\"https:\/\/scholarsclasses.com\/blog\/importance-of-law-of-diminishing-marginal-utility\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/importance-of-law-of-diminishing-marginal-utility\/\" target=\"_blank\" rel=\"noreferrer noopener\">Importance of Law of Diminishing Marginal Utility<\/a><\/strong><\/li>\n\n\n\n<li><strong><a href=\"https:\/\/scholarsclasses.com\/blog\/utility-in-economics-meaning-concepts\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/utility-in-economics-meaning-concepts\/\" target=\"_blank\" rel=\"noreferrer noopener\">Utility in Economics ( Concepts of Utility )<\/a><\/strong><\/li>\n\n\n\n<li><strong><a href=\"https:\/\/scholarsclasses.com\/blog\/features-of-utility\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/features-of-utility\/\" target=\"_blank\" rel=\"noreferrer noopener\">Features of Utility<\/a><\/strong><\/li>\n\n\n\n<li><strong><a href=\"https:\/\/scholarsclasses.com\/blog\/types-of-utility\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/types-of-utility\/\" target=\"_blank\" rel=\"noreferrer noopener\">Types of Utility<\/a><\/strong><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>&#46;&#46;&#46;<\/p>\n","protected":false},"author":1,"featured_media":11059,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[10,1],"tags":[3827],"class_list":["post-11040","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-educational-blogs","category-misc","tag-importance-of-price-elasticity-of-demand-in-economics"],"_links":{"self":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/11040","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/comments?post=11040"}],"version-history":[{"count":3,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/11040\/revisions"}],"predecessor-version":[{"id":35688,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/11040\/revisions\/35688"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media\/11059"}],"wp:attachment":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media?parent=11040"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/categories?post=11040"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/tags?post=11040"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}