economics office word

Jun 21st, 2015
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Practical importance of elasticity of demandElasticity of Demand :- " Elasticity of demand is the rate at which the quantity demanded changes with a change in price."In other words we can say that elasticity of demand is the relationship between the proportionate change in price and the proportionate change in quantity demanded.FORMULA : ED = Proportionate change in quantity demanded/Proportionate change in price.PRACTICAL IMPORTANCE OF ELASTICITY OF DEMAND This concept has a great practical importance in the sphere of government finance and in the commerce and trade due to the following reasons :1. IMPORTANCE FOR FINANCE MINISTER :- Before imposing the taxes finance minister has to keep in view the elasticity of demand of various goods. If the demand is inelastic, he can increases the tax and thus can collect large revenue.2. IMPORTANCE FOR THE MONOPOLIST :- If the monopolist finds that the demand for his product is inelastic, he will fix the price at a higher level, otherwise he will lower the price.3. FIXATION OF WAGES :- If a demand of labour is inelastic, it is easy to rise their wages otherwise not.4. INTERNATIONAL TRADE :- If the demand of commodity is inelastic then heavy duties can be imposed on its import heavy duties can be imposed on its import and export.5. IMPORTANCE FOR THE PRODUCER :- Producer will study elasticity of demand before fixing the price of his commodities. Secondly, If the demand for a commodity is inelastic the producer will

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