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Explain briefly any four applications of the concept elasticity

Explain briefly any four applications of the concept elasticity.

Answers

Abdullahi
The concept of elasticity of demand is of great practical importance. The following facts indicate the application of this concept.

1. For a consumer

When a consumer has to spend his income on the purchase of different commodities, he has to keep in view the elasticity of different commodities. Normally, a consumer spends major portion of his income on the purchase of those commodities which have less elastic demand.

2. For the monopolist

A monopolist can charge any price for his product because he/she has complete control on the supply of that product. He will charge higher price for those commodities which have less elastic demand and vice-versa.

3. For the government

When Government imposes taxes, elasticity factor is kept in view. If the Government imposes tax on the commodities which have less elastic demand, it generates higher income and vice-versa.

4. Devaluation policy

Devaluation means to lower the value of domestic currency in terms of foreign currency. Due to devaluation, exports become cheaper for the foreigners and imports become expensive for the residents. An increase in exports and decrease in imports result in the improvement of balance of payments. It is possible only when the elasticity of demand for exports and imports is high.
Dullayo answered the question on May 21, 2018 at 04:54

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