“Empowering Your Perspective with Timely, In-Depth News Coverage.”

Indahislam

  • Economic Policies
    Economic PoliciesShow More
    Did the Fire in LA Affect the Dollar Exchange Rate?
    Economic Policies
    Definition of Formal Equilibrium
    Economic Policies
    Comparison with Nostro and Loro Accounts
    Economic Policies
    The Importance of Convexity Effects in Investment
    Economic Policies
    Introduction to the Greenback and USD
    Economic Policies
  • Investment Market
    Investment MarketShow More
    Krugerrand Coin Design and Characteristics
    Investment Market
    Procedures for Calculating and Reporting Surcharge
    Investment Market
    Differentiation of the Bertrand Edgeworth Model from the Bertrand and Cournot Model
    Investment Market
    Chaebol Influence on Economics and Politics in Korea
    Investment Market
    Intra-Firm Trade in the United States
    Investment Market
  • Asset Management
    Asset ManagementShow More
    Components and Functions of Querycal Jobs
    Asset Management
    Understanding Cloud Mining
    Asset Management
    Recognition and Measurement of Deferred Assets
    Asset Management
    Factors Causing Economic Disruption
    Asset Management
    The main role of a Certified Public Accountant
    Asset Management
  • Financial Context
    Financial ContextShow More
    Probability Concept in Expected Payoff
    Financial Context
    Basic Principles of Bimetallic Standards
    Financial Context
    Understanding Sharia Economics and Conventional Economics
    Financial Context
    Examples and Implications of Using Credit Spreads in Investment
    Financial Context
    How Unit Linked Insurance Plans (ULIP) Work
    Financial Context
  • Government Fund
    Government FundShow More
    Definition of Law of One Price (LOOP)
    Government Fund
    The importance of adaptation in forex trading strategies
    Government Fund
    LELIQ Structure and Mechanism
    Government Fund
    How to Reduce Unsystematic Risk
    Government Fund
    Factors Influencing Dovish and Hawkish Attitudes
    Government Fund
Aa
indahislam.comindahislam.com
Search
  • Home
  • Categories
  • More Foxiz
    • Blog Index
    • Sitemap
banner
Create an Amazing Newspaper
Discover thousands of options, easy to customize layouts, one-click to import demo and much more.
Learn More

Stay Updated

Get the latest headlines, discounts for the military community, and guides to maximizing your benefits
Subscribe

Explore

  • Photo of The Day
  • Opinion
  • Today's Epaper
  • Trending News
  • Weekly Newsletter
  • Special Deals
Made by ThemeRuby using the Foxiz theme Powered by WordPress
indahislam.com > Blog > Economic Policies > Application of Point Elasticity in Business and Economics

Application of Point Elasticity in Business and Economics

indah islam By indah islam 9 Min Read 168.8k Views
Share

Definition of Point Elasticity

Point Elasticity is a concept in economics that measures the sensitivity of demand or supply to changes in price at a particular point on a curve. This method calculates price elasticity at a specific point in the demand or supply curve using the derivative of the demand or supply function. It is important to understand how price changes will affect the quantity of goods and services demanded by consumers or offered by producers. The basic concept of point elasticity involves the use of mathematical concepts such as derivatives and limits to calculate elasticity at a specific point. Through these calculations, economists can assess the extent to which price changes will affect market behavior. Point elasticity is often used to analyze situations when price changes are considered very small, so that the effect on demand or supply can be seen directly.

Meanwhile, Arc Elasticity is another method for measuring price elasticity which takes into account changes in quantity demanded or supplied along the entire curve, not just at one point. This method uses the average price and quantity between two points as the basis for calculating elasticity. Arc elasticity aims to overcome the limitations of point elasticity, especially when price changes are greater than those assumed in point elasticity. The main difference between point elasticity and arc elasticity lies in the way they measure price elasticity. Point elasticity only considers the elasticity at a specific point on the curve, while arc elasticity considers the change in elasticity across the curve between two points. In short, point elasticity is more suitable for measuring small and specific changes in the price of goods or services, while arc elasticity is more relevant when assessing the impact of broader and significant price changes on a market scale.

Point Elasticity Formula

The point elasticity formula is very important in understanding how price changes will affect the demand or supply of products in a business. Calculating the price elasticity of demand or supply using the point elasticity formula can help you determine how responsive consumers are to price changes. In general, price elasticity measures the percentage change in the quantity of goods demanded or offered compared to the percentage change in price. The point elasticity formula for calculating price elasticity of demand (PED) is as follows: PED = (% change in quantity demanded) / (% change in price). Meanwhile, to calculate price elasticity of supply (PES), the formula is: PES = (% change in quantity supplied) / (% change in price). In both, the figure shows how elastic demand or supply is to changes in price.

The application of the point elasticity formula is very useful in making business decisions. For example, if the PED calculation result is greater than one, it means that demand is elastic and a decrease in price will increase the company’s revenue. However, if PED is less than one, demand is inelastic and price reductions will not have a significant impact on revenue. Thus, a business decision maker can evaluate the appropriate pricing strategy to achieve the desired results for their organization. Likewise, using the point elasticity formula in calculating price elasticity of supply helps businesses optimize their offering of goods or services. For example, if PES is greater than one, then supply is elastic and an increase in price will cause an increase in the quantity of the product offered. On the other hand, if PES is less than one, then supply is inelastic and price increases will not have a significant effect on the number of products offered. By considering these elasticity factors, entrepreneurs can make better decisions about the resources allocated to the production and distribution of their goods or services.

Factors Affecting Point Elasticity

The first factor that influences point elasticity is the importance of price and quantity of goods in calculating point elasticity. Point elasticity measures the response of demand to changes in price by considering changes in the quantity of goods demanded. Therefore, price and quantity of goods are the two main variables in this calculation. If the price of a product changes, there will be a direct impact on the quantity demanded of that product. This understanding is important for estimating how consumers will respond to price changes that may occur in the future.

The influence of consumer preferences is also an important factor that influences point elasticity. Consumer preferences can change over time and are one of the main reasons for changes in demand for a product. Consumer tastes, trends, and brand image all contribute to consumer preferences. For example, if a product becomes very popular or very unpopular with the public, this will affect demand and ultimately affect point elasticity.

The level of competition also plays a role in determining point elasticity. If a market has many competitors offering similar or substitute products, a price change by one provider may have a significant impact on demand for that product. Consumers tend to switch to cheaper alternatives if the price difference is considered significant. In situations like this, point elasticity tends to be high, because price changes will produce a fast response from consumers.

Time is also a key factor that influences point elasticity. In the short term, consumers may not respond to price changes immediately or may not even know about them. However, in the long term, consumers will be more sensitive to price changes and as a result demand will change according to these price changes. Therefore, time affects how a product reflects the impact of price changes on demand and will ultimately affect the value of point elasticity.

Application of Point Elasticity in Business and Economics

Point Elasticity is an important concept in business and economics that helps businesses understand how price changes will affect demand for their products or services. In the context of point elasticity pricing, businesses can measure price elasticity (the difference between the percentage change in quantity demanded and the percentage change in price) to determine whether they should increase or decrease the price of their product or service. By paying attention to pricing strategies based on point elasticity, businesses can maximize their profits. If a product has high price elasticity, meaning demand for the product will be very sensitive to price changes, then a price reduction can result in an increase in revenue. On the other hand, if the price elasticity is low and not much affected by price changes, the business should tend to increase its prices to increase revenue.

Market response analysis is becoming an important tool for entrepreneurs to optimize their revenue and profitability. This involves observing consumer and competitor behavior in response to price changes as well as understanding other factors that influence demand, such as consumer preferences, market trends, and macroeconomic factors. This analysis helps businesses forecast how much demand will react to price changes, so they can adjust their pricing strategies effectively. Overall, the application of point elasticity in business and economics provides important insights for companies in optimizing their revenues and profits. In the context of a pricing strategy based on point elasticity, businesses can identify which products or services are more elastic to price changes and adjust their prices accordingly to achieve increased revenue. Additionally, analysis of market response to changes in product or service prices allows businesses to devise more effective strategies to increase profitability.

indah islam December 2, 2024 May 1, 2023
Share This Article
Facebook Twitter Copy Link Print
Previous Article The Role of Quote Currency in Transactions
Next Article Legality and Government Regulations Regarding Shell Corporation
Leave a comment Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Stay ahead of the curve, navigate the complexities of the market, and achieve your financial goals with confidence.

Recognition and Measurement of Deferred Assets

indah islam 172.1k Views

Comparison with Nostro and Loro Accounts

indah islam 195.1k Views

Forex and its relationship with pledged assets

indah islam 133.2k Views

Your trusted source for financial clarity

We bring you the latest financial news, expert analysis, and market insights to help you navigate the fast-paced world of finance

Recent Posts

  • Case Examples and Application of Fiscal Neutrality

    Case Examples and Application of Fiscal Neutrality

    Fiscal neutrality is a fiscal policy concept that refers to …
  • How to Reduce Unsystematic Risk

    How to Reduce Unsystematic Risk

    Unsystematic Risk is a risk that arises as a result …
  • Industry Position and its Relationship to Market Share

    Industry Position and its Relationship to Market Share

    Understanding Market Share Market share is a term used to …
  • Introduction to Accelerated Cost Recovery Systems

    Introduction to Accelerated Cost Recovery Systems

    The Accelerated Cost Recovery System (ACRS) is a depreciation mechanism …
  • Example of a Forex Transaction with Base Currency

    Example of a Forex Transaction with Base Currency

    Definition of Base Currency Base currency is the currency that …

Most Popular

  • Comparison with Nostro and Loro Accounts

  • Multilateral Linkages with Commodities

  • Process and recovery from stock suspension

  • Factors Causing Forced Savings in Fiscal Policy

  • Introduction to the Greenback and USD

  • Legality and Government Regulations Regarding Shell Corporation

You Might Also Like

Did the Fire in LA Affect the Dollar Exchange Rate?

Economic Policies

Definition of Formal Equilibrium

Economic Policies

Comparison with Nostro and Loro Accounts

Economic Policies

The Importance of Convexity Effects in Investment

Economic Policies

INDAHISLAM

FINANCIAL  NEWS

© Indahislam Global Source. 2021 – 2025. All Rights Reserved.

Helpful Links

  • Home
  • Terms of Use
  • About Us
  • Privacy Policy
  • Contact

Author Picks

Did the Fire in LA Affect the Dollar Exchange Rate?
Components and Functions of Querycal Jobs
Seller’s responsibility in Cost and Freight (CFR)

Our mission is to provide you with the latest, most relevant financial news and expert analysis to help you make informed decisions.

Welcome Back!

Sign in to your account

Lost your password?