Question

If you owned a business, the elasticity of demand for your product would be very important. What exactly is elasticity, what affects or "changes" it, and why is it so important to your business?

Answer 1

Elasticity is the changeability or sensitivity of the demand for a good due to a change in another factor. Principally the price of the product, the income level of the population and availability of the substitute products affect elasticity the most.

When there is an increase in the prices of goods or services demand decreases and vice versa.

When there is an increase in the income level of the people they will have more money to spend and there will be an increase in the demand and vice versa.

If there are substitute products available in the market for my product then the demand for my product will vary according to the changes in the prices of substitutes. Suppose there is a decrease in the prices of substitute then demand for my product will decline and vice versa. However, the closer the substitutes is, the more is the elasticity.

Elastiveryy is ery important for my business as it determines the demand for my product and demand for my product determines the profitability and viability of my business.