Importance of Determining Price Elasticity

¡§Price elasticity is important in business to determine in a given market whether an increase (or decrease) in prices will generate an increase (or decrease) in revenues¡¨ (Elasticity coefficients, n.d.). ¡§Elasticity of demand calculations reflect ¡§the percentage change in quantity demanded per 1percent increase in price¡¨ (Hall, 2001, p.92). It should be noted that when the elasticity co-efficient is greater than 1.0 an increase in price will result in a decrease in demand and thus a de

Calculating the Elasticity coefficient (E)

( %change in y ) / ( %change in x ). ¡§If y is quantity demanded and x is price, then the ratio represents the price-elasticity coefficient, which indicates the percentage change in quantity as price changes 1%. If x is income then the number becomes the income-elasticity coefficient¡¨ (Elasticity coefficients, n.d.).

„« Therefore, revenues increase (decrease) (Elasticity coefficients, n.d.)

„« Price and revenues move in opposite directions

The 10% reduction in pricing that was recommended by the Marketing department would be positively received and acted upon by consumers in the form of increased sales. This is a perfect example of price elasticity cause and effect. Price reductions at this time would satisfy the requests of the Marketing department while still maintaining the reasonable and healthy profit margins required by the GM. It is recommended that the 10% price reduction strategy be adopte

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