Question

What is the importance of concept of elasticity of demand.

Answer 1

Elasticity of demand measures the ratio of the proportionate change in quantity demanded of a commodity to proportionate change in price. Concept of elasticity of demand is important to the government as it helps the government to formulate tax policies.

Concept of elasticity of demand is important to foreign trade as it helps to determine the demand for foreign exchange. It also helps to determine trade relations between two countries.

Concept of elasticity of demand is important to industrial production as it helps to determine the demand for the output produced by the firm.