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3 July, 03:28

Explains how elasticity and incentives work together

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  1. 3 July, 06:36
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    In the modern microeconomics, price elasticity measures the correlation between variation in demand and variation in price. If the market is elastic, a small change in price results in a significant change in sales volume. If the market is inelastic, a significant change in price results in a small change in sales volume. Therefore, the pricing strategy will be different depending on whether the market is elastic or inelastic:

    If the market is elastic, the increase in profits implies a decrease in the price.

    If the market is inelastic, an increase in profits implies a price increase.
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