Question

Discuss why a manager should be familiar with the concept of elasticity of demand and supply.

Answer 1

Elasticity of demand and supply is a very important concept that a manager should take in to consideration. If a product's demand  is price elastic it means that an increase in price will affect the quantity demanded by reducing it and there by the revenue from that good will also get reduced. Likewise if the increase in price tends to increase the revenue then the demand for that good can be said as inelastic. Thus the manager must be aware of these responsiveness of the consumers while increasing or decreasing the price of a commodity. So if a manager is well aware about the elasticity of demand and supply of the products produced by his firm, then he can make changes in the price of the commodities produced without incurring losses. Elasticity of supply shows the responsiveness of supply when there is change in price. As price increases supply also increases in same direction according to the law. But the manager must focus both on supply and demand elasticity before increasing price and quantity supplied.  Thus the concept of elasticity of demand and supply is very important to make pricing decisions.