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Question
Write short notes Significance of price elasticity of demand.
Solution
The following points highlight the importance of elasticity of demand:
- Useful for trade unions- The concept of elasticity of demand is used by trade union leaders in collective bargaining. For instance, the trade union leaders can bargain for higher wages if they know that the demand for their labour is inelastic.
- Useful in international trade- This concept proves helpful in determining the norms that would prove beneficial for international trade. For instance, based on the elasticity of the commodities that are exported, the country can decide on the price that is to be charged.
- Useful to finance minister- Elasticity of demand helps finance minister in selecting goods and services that can be taxed and on which subsidy should be provided.
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