Question

For a consumer elasticity is important as the amount of a good consumed sometims has a bearing on the price. There are certain goods liike gasoline which are not consumed in different amounts when its price fluctuates. This is because every consumer has a specific requirement for travelling and so her consumption for gasoline is more or less fixed. Such products are inelastic in demand for which the consumers are not much affected by the price change. Then there are goods like jewelry which have elastic demand. These are luxuries as against gasoline which comes under the category of necessities. Luxuries have elastic demand because consumers do not really need them so they are more senstitive to its prices. Elasticity to a consumer is also important because it tells them whether a good is a significant part of their budget or not. Goods with elastic demand tend to have a larger share in the budget.

Answer 1

Consumer elasticity is important, because it also helps in building pricing strategy of the firms. For example, airline firms, put a higher price on tickets, for the business class, but lower price on tickets that is used by the price sensitive customers. It is due to the reason that business class customers are less price sensitive to the customers who are occasional flyers. The government also uses elasticity to collect taxes from those products whose demands are less price sensitive. For example, demand for tobacco products and alcoholic products are less price sensitive, making government to apply high taxes.

Further, elasticity also applies to the suppliers and suppliers responds differently to the change in prices in the short run as well as in the long run. In the short run, suppliers are less responsive as they cannot change their supply. But, in the long run, suppliers can adjust their capabilities and respond adequately to the change in prices.

Besides, cross elasticity of demand and advertising elasticity for marketing strategy are also very important to evaluate the impact of different products as substitutes or complements on  a particular product.