It is the ratio of the percentage change in demand for one good to the percentage change in the price of some other good. A positive value means that these goods are interchangeable (substitutes), negative value shows that they are complementary (complements). Cross elasticity of demand calculated using formula (5.4):

where is the superscript D means that this is the elasticity of demand,

subscript AB suggests that this is cross elasticity of demand, where under A And B any two goods are meant.

That is, cross elasticity of demand shows the degree of change in demand for one product ( A) in response to a change in the price of another good ( B) . Depending on the values ​​of the receiving variable E distinguish the following connections between goods A And B:

1) – substitute goods, i.e. with an increase in the price of the product IN demand for goods will increase A(two brands of washing powder);

2) – complementary goods, i.e. increase in the price of goods IN will lead to a decrease in demand for the product A(these are laptops and their accessories);

3) – independent goods from each other, i.e. change in product price B does not affect the consumption of the product in any way A.

5.2. Elasticity of supply

Elasticity of supply- the degree of change in the quantity of goods and services offered in response to changes in their price.

Supply elasticity coefficient- a numerical indicator that makes it possible to estimate by what percentage the value of the offered product will change when the price of this product changes by 1%.

The process of increasing elasticity of supply in the long and short term is revealed through the concepts of instantaneous, short-term and long-term equilibrium.

Price elasticity of supply is calculated by formula (5.5):

where is the superscript S means that this is the elasticity of supply, and the subscript p suggests that this is the price elasticity of supply (from English words Suplay - offer and Price - price).

Depending on these indicators there are:

1) – perfectly inelastic supply, i.e. the quantity supplied does not change when the price changes;

2) – inelastic supply

3) – unit elasticity of supply, i.e. when the price changes by 1%, the supply changes by 1%;

4) – elastic supply, i.e. when the price changes by 1%, the supply changes by more than 1%;

5) – absolutely elastic supply, i.e. The quantity supplied is not limited when the price falls below a certain level.

The elasticity of supply depends on:

Features production process(allows the manufacturer to expand production of a product when its price increases or switch to the production of another product when prices decrease);

Time factor (the manufacturer is not able to quickly respond to price changes on the market);

The inability of this product to long-term storage.

5.3. Practical significance of elasticity theory

The theory of elasticity has great value to determine the economic policies of firms and governments.

To determine the “rate of change” in the demand and supply of goods on the market, economists introduced the concept of “elasticity”.

The concept of elasticity was first introduced into economics by Alfred Marshall (1842–1924)

Under elasticity should be understood as the percentage of change in the value of one variable as a result of a change by one unit in the value of another variable. Based on all of the above, we come to the conclusion that elasticity shows by what percentage one economic variable will change when another changes by one percent.

The ability of consumption and demand to change within certain limits under the influence of economic factors is called elasticity of consumption and demand. Elasticity of supply and demand is necessary for drawing up projects economic development and economic forecasts.

Without it, not a single market (mixed) economic system functions now.

Under elasticity of demand one must understand the extent to which demand changes in response to price changes.

Under elasticity of supply one must understand the relative changes in the prices of goods and their quantities offered for sale.

Price Elasticity of Demand

There are the following types of elasticity of demand:

1. elastic demand is considered as such if, with minor price increases, sales volume increases significantly;
2. unit elasticity demand. When a 17% change in price causes a 1% change in the demand for a good;
3. inelastic demand. It will be that with significant changes in price, sales volume changes insignificantly;
4. infinitely elastic demand. There is only one price at which consumers buy the product;
5. perfectly inelastic demand. When consumers purchase a fixed quantity of goods regardless of their price.

Price elasticity of demand, or price elasticity of demand, shows how much the quantity demanded for a product changes in percentage terms when its price changes by 1%.

The elasticity of demand increases in the presence of substitute goods - the more substitutes, the more elastic the demand will be, and decreases with increased consumer demand for a given product, i.e. the degree of elasticity is lower, the more necessary the product is.

If you indicate the price R, and the quantity of demand Q, then the indicator (coefficient) of price elasticity of demand Er equal to:

where Δ Q- change in demand, %; ?Р – price change, %; "R"- in the index means that elasticity is considered by price.

Similarly, you can determine the elasticity indicator for income or some other economic value.

The indicator of price elasticity of demand for all goods is a negative value. Indeed, if the price of a product decreases, the quantity demanded increases, and vice versa. At the same time, to assess elasticity, the absolute value of the indicator is often used (the minus sign is omitted). For example, a decrease in price sunflower oil by 2% caused an increase in demand for it by 10%. The elasticity index will be equal to:

If the absolute value of the price elasticity of demand indicator is greater than 1, then we are dealing with relatively elastic demand: a price change in in this case will lead to a greater quantitative change in the quantity demanded.

If the absolute value of the price elasticity of demand indicator is less than 1, then demand is relatively inelastic: a change in price will entail a smaller change in the quantity demanded.

If the elasticity coefficient is equal to 1 – ϶ᴛᴏ unit elasticity. In this case, a change in price leads to the same quantitative change in the quantity demanded.

There are two extreme cases. In the first, there is only one price possible, at which the product will be purchased by buyers. Any change in price will lead either to a complete refusal to purchase a given product (if the price rises) or to an unlimited increase in demand (if the price decreases) - demand is absolutely elastic, the elasticity index is infinite. Graphically, this case can be depicted as a straight line parallel to the horizontal axis. For example, the demand for lactic acid products sold by an individual merchant in a city market is absolutely elastic. At the same time, market demand for lactic acid products is not considered elastic. The other extreme is an example of perfectly inelastic demand, where a change in price is not reflected in the quantity demanded. The graph of perfectly inelastic demand looks like a straight line perpendicular to the horizontal axis. An example would be the demand for individual species medicines that the patient cannot do without, etc.

Based on all of the above, we come to the conclusion that the absolute value of the price elasticity of demand indicator can vary from zero to infinity:

From formula (1) it is clear that the elasticity indicator depends not only on the ratio of price and volume increases or on the slope of the demand curve, but also on their actual values. Even if the slope of the demand curve is constant, the elasticity will be different for different points on the curve.

There is one more circumstance that should be taken into account when determining elasticity. In areas of elastic demand, a decrease in price and an increase in sales volume lead to an increase in the total revenue from sales of the company's products; in an area of ​​inelastic demand, it leads to a decrease. Therefore, each company will strive to avoid that part of the demand for its products where the elasticity coefficient is less than one.

Income elasticity of demand. Cross Elasticity

Under income elasticity of demand refers to changes in demand for a product due to changes in consumer income. If an increase in income leads to an increase in demand for a product, then this product belongs to the “normal” category; if the consumer’s income decreases and the demand for the product increases, the product belongs to the “inferior” category. For the most part, consumer goods fall into the normal category.

Income elasticity measures indicate whether a given good is categorized as “normal” or “inferior.”

Income elasticity of demand is equal to the ratio of the percentage change in the quantity demanded of a good to the percentage change in income and can be expressed as the following formula:

Where E1D- coefficient of elasticity of demand depending on income;

Q0 and Q1- the amount of demand before and after a change in income;

I0 and I1- income before and after the change.

The elasticity of demand is greatly influenced by the availability of goods on the market designed to satisfy the same need, i.e. substitute goods. The elasticity of demand for a product is higher, the more opportunities a buyer has to refuse to purchase a particular product if its price rises.

As our income increases, we buy more clothes and shoes, high-quality food products, and household appliances. But there are goods for which the demand is inversely proportional to the income of consumers: all “second hand” products, certain types of food (cereals, sugar, bread, etc.)

For essential goods, such as bread, demand is relatively inelastic. With all this, the demand for certain types of bread is relatively elastic. The demand for cigarettes, medicines, soap and other similar products is relatively inelastic.

If there are a significant number of competitors on the market, the demand for products from companies producing similar or similar products will be relatively elastic. As the competitiveness of firms increases, when many sellers offer the same products, the demand for each firm's product will be perfectly elastic.

To determine the degree of influence of a change in the price of one product on a change in demand for another product, the concept of cross elasticity is used. Yes, price increase butter will cause an increase in demand for margarine, a decrease in the price of Borodino bread will lead to a reduction in demand for other types of black bread.

Cross Elasticity- demand dependence from substitute goods and goods that complement each other.

- ϶ᴛᴏ the ratio of the percentage change in demand for product A to the percentage change in the price of product B:

where “c” in the index means cross elasticity (from the English cross)

The value of the coefficient depends on which goods are considered - interchangeable or complementary. The cross elasticity coefficient is positive if the goods interchangeable; negative if goods complementary, such as gasoline and automobiles, cameras and film, the quantity demanded will change in the direction opposite to the change in prices.

Based on all of the above, we come to the conclusion that by determining the value of the cross-elasticity coefficient, we can find out whether the selected goods are considered complementary or interchangeable, and how a change in the price of one type of product produced by a company can affect the demand for others types of products from the same company. It must be remembered that such calculations will help the company when making decisions on pricing policy for manufactured products.

Price elasticity is greatly influenced by time factor. Demand is less elastic in the short run and more elastic in the long run. It is this tendency of change in elasticity over time that is explained by the consumer’s ability to change his consumer basket over time and find a substitute product.

Differences in demand elasticity are also explained significance of this or that product for the consumer. The demand for necessities is inelastic; demand for goods that do not play an important role in the consumer's life is usually elastic.

Elasticity of supply

Elasticity of supply- sensitivity of the supply of goods to changes in prices for these goods.

The elasticity of supply is influenced by: the presence or absence of production reserves - if there are reserves, then short term supply is elastic; availability of storage facilities finished products- supply is elastic.

There are the following types of elasticity of supply:

1. elastic offer. A 1% increase in price causes a significant increase in the supply of goods;
2. proposition of unit elasticity. A 1% increase in price leads to a 1% increase in the supply of goods on the market;
3. inelastic supply. The price increase does not affect the quantity of goods offered for sale;
4. elasticity of supply in the instantaneous period (i.e. the period of time is short, and producers do not have time to react to changes) - supply is fixed;
5. elasticity of supply in the long run (a period of time sufficient to create new production capacity) – supply is most elastic.

In order to determine how the production of a particular product affects price changes, the price elasticity of supply is measured.

Elasticity of supply is measured by the relative (percentage or fraction) change in quantity supplied when price changes by 1%.

Formula coefficient of price elasticity of supply is similar to calculating the coefficient of price elasticity of demand. The only difference is that instead of the quantity of demand, the quantity of supply is taken:

Where Q0 u Q1- offer before and after price change; P0 And P1- prices before and after the change; s- in the index means the elasticity of supply.

Unlike demand, supply is less dependent on changes in the production process and is more adaptable to changes in price.

The elasticity of supply is influenced by: the presence or absence of production reserves - if there are reserves, then in the short term the supply is elastic; the ability to store stocks of finished products - supply is elastic.

Elasticity of supply taking into account the time factor

The time factor is a key indicator in determining elasticity. There are three time periods that affect the elasticity of supply - short-term, medium-term and long-term.

Short term- too short for the firm to make any changes in the volume of output, and in this time period supply is inelastic.

Medium term increases the elasticity of supply, as it makes it possible to expand or reduce production at existing production facilities, but it is not sufficient to introduce new capacities.

Long term with an increase in demand for the goods of the industry, it allows the company to expand or reduce their production capacity, as well as the influx of new firms into the industry or, if the demand for the products of the industry decreases, the closure of firms. The elasticity of supply in this period is higher than in the two previous periods.

Do not forget that it will be important to say that supply in the current period remains fixed, since manufacturers do not have time to react to changes in the market.

The practical significance of the elasticity of supply and demand

Elasticity of demand – important factor influencing the company's pricing policy. If supply is elastic, then due to an increase in the price of a product and a reduction in production volume, the tax burden falls mainly on the consumer, the amount of tax is reduced compared to the amount of tax with inelastic supply, and society's losses increase.

Based on all of the above, we come to the conclusion that the theory of elasticity of supply and demand has important practical significance. An increase in production costs actively forces the enterprise to increase product prices. To know how sales will react to these changes and to choose the right pricing strategy for an enterprise, it is necessary to determine the elasticity of supply and demand for a given product. The following should be kept in mind: the elasticity of demand for a firm's product and the elasticity of market demand are not the same. The first is always (with the exception of the firm's absolute monopoly on the market) higher than the second. Calculating the price elasticity of demand for a company's products is quite complex, since it is extremely important to take into account the reaction of competitors to a company's increase or decrease in prices, to use mathematical models or the experience of the company's managers.

If a firm, when making a price decision, is guided only by data on the elasticity of market demand, then sales losses from price increases may become more significant than expected.

Suppose: some company has built an apartment building and is deciding at what price apartments should be offered to tenants. Construction and operating costs are virtually independent of how many apartments will be delivered (except for the cost of ongoing repairs, which is a small proportion of total costs). When a firm knows the demand for apartments and its elasticity, it can determine at what price it should rent apartment data in order to ensure maximum revenue. With this, maximum revenue can be achieved even if some of the apartments remain empty.

Taking into account the dependence on the elasticity of demand and supply for certain types of goods and services, the tax burden will be distributed differently between producers and consumers of products.

By introducing indirect taxes, the state aims to increase the volume of tax revenues to the budget for the redistribution of resources in the economy, the redistribution of income of the population and support for the poor, the development of the social sphere, infrastructure, defense, etc.

1. To determine the “rate of change” of supply and demand, economists use the concept of elasticity of supply and demand. Elasticities of supply and demand are essential for economic development projects and economic forecasts. Elasticity should be understood as the percentage of change in the value of one variable as a result of a change of one unit in the value of another.

2. Price elasticity of demand, or price elasticity of demand, shows how much the quantity of demand for a product changes in percentage terms when its price changes by 1%.

3. If the absolute value of the price elasticity of demand indicator is greater than 1, then we are dealing with relatively elastic demand. If the absolute value of the price elasticity of demand indicator is less than 1, then demand is relatively inelastic. With elastic demand, a decrease in price and an increase in sales volume lead to an increase in the total revenue from sales of the company's products; in the area of ​​inelastic demand, it leads to a decrease in revenue. Note that each company strives to avoid that segment of demand for its products where the elasticity coefficient is less than one.

4. With an elasticity coefficient equal to 1 (unit elasticity), a change in price leads to the same quantitative change in the quantity demanded.

5. Income elasticity of demand is the ratio of changes in demand for a product to changes in consumer income.

6. Cross elasticity of demand is used to determine the degree to which the quantity of demand for a given product is affected by changes in the price of another product (a product that replaces a given product or a product that complements it)

7. Cross elasticity coefficient - ϶ᴛᴏ ratio of the percentage change in demand for a product A to the percentage change in the price of a product B.

8. Elasticity of supply - the sensitivity of the supply of goods to changes in prices for these goods. Elasticity of supply is measured by the relative (percentage or fraction) change in quantity supplied when price changes by 1%.

9. The time factor has an important influence on the elasticity of supply. When estimating supply elasticity, three time periods are considered: short-term, medium-term and long-term.

Cross elasticity of demand characterizes the relative change in the volume of demand for one product when the price of another changes. The concept of cross elasticity of demand is used to determine the degree to which the quantity of demand for a given product is affected by changes in the price of another product

The coefficient of cross price elasticity of demand is the ratio of the relative change in demand for the i-th product to the relative change in the price of the j-th product.

If EijD > 0, then goods i and j are called interchangeable (substitutes), an increase in the price of the j-th product leads to an increase in demand for the i-th (for example, various types fuel).

If EijD< 0, то товары i и j называют взаимодополняющими (комплементами), повышение цены j-того товара ведет к падению спроса на i-тый (например, автомашины и бензин).

If EijD = 0, then such goods are called independent; an increase in the price of one product does not affect the volume of demand for another (for example, bread and cement). Where Qi is the quantity of the i-th product, then Pj is the price of the j-th product.

If the price of a substitute product changes, the cross-elasticity coefficient will be greater than zero (for example, an increase in the price of beef will cause an increase in demand for poultry meat).

When the price of a complimentary product changes, the cross-elasticity coefficient will be less than zero (for example, an increase in the price of gasoline leads to a decrease in the demand for cars).

Calculating the coefficient of cross price elasticity of demand allows you to answer by how many percent the quantity of demand for product A will change if the price of product B changes by one percent. Calculating the cross-elasticity coefficient makes sense primarily for substitute and complementary goods, since for weakly interconnected goods the value of the coefficient will be close to zero.

Let's remember the example of the chocolate market. Let's say we also conducted observations of the halva market (a product that is a substitute for chocolate) and the coffee market (a product that is a complement to chocolate). Prices for halva and coffee changed, and as a result, the volume of demand for chocolate changed (assuming all other factors remain unchanged).

Using the formula, we calculate the values ​​of the coefficients of cross price elasticity of demand. For example, when the price of halva is reduced from 20 to 18 den. units demand for chocolate decreased from 40 to 35 units. The cross elasticity coefficient is:

Thus, with a decrease in the price of halva by 1%, the demand for chocolate in a given price range decreases by 1.27%, i.e. is elastic relative to the price of halva. In a similar way, we calculate the cross elasticity of demand for chocolate with respect to the price of coffee if all market parameters remain unchanged and the price of coffee decreases from 100 to 90 deniers. units:

Thus, when the price of coffee decreases by 1%, the quantity of demand for chocolate increases by 0.9%, i.e. The demand for chocolate is inelastic relative to the price of coffee. So, if the coefficient of elasticity of demand for good A with respect to the price of good B is positive, we are dealing with substitute goods, and when this coefficient is negative, goods A and B are complementary. Goods are called independent if an increase in the price of one good does not affect the quantity of demand for another, i.e. when the cross elasticity coefficient is zero. These provisions are only true when small changes prices If price changes are large, then the demand for both goods will change under the influence of the income effect. In this case, products may be incorrectly identified as complements.

The value of the cross-elasticity coefficient depends on whether the goods are considered interchangeable or complementary. If the goods are substitutes, the cross elasticity coefficient will be positive value. Thus, a rise in the price of butter will cause an increase in demand for margarine, and a decrease in the price of Borodino bread will lead to a reduction in demand for other types of black bread. If the goods are complementary, such as gasoline and cars, cameras and film, the quantity demanded will change in the direction opposite to the change in prices, and the elasticity coefficient will be negative.

Rice.

By measuring cross elasticity, one can determine whether the selected goods are complementary or substitutable and, accordingly, how a change in the price of one type of product produced by a firm can affect the demand for other types of products of the same firm. Such calculations will help evaluate decisions on changes in prices for manufactured products.

Cross elasticity is widely used in antitrust policy: evidence that a company is not a monopolist of a particular product is the fact that the product produced by this company has a positive cross elasticity of demand with the product of another company.

Cross Elasticity

This is the next type of elasticity of demand, characterizing the degree of reaction of changes in demand for a given product as a result of changes in prices for related substitute goods or complementary goods.

The coefficient of cross elasticity of demand is calculated as the ratio of the percentage change in demand for a given product (denoted by the letter A to the percentage change in the price of a product interconnected with it (let us denote it conventionally by the letter b). Then the formula for calculating the cross elasticity coefficient will take the following form:

where D(2i„ relative change in demand for goods A; D R' relative change in price of a related good b (1 0a And R'- relevant initial values demand for goods A and prices for related goods b.

The nature of changes in demand for goods A from changes in the price of goods b depends on their relationship to each other:

If Ec°> 0, then goods A And b relate to each other as interchangeable goods (for example, different soft drinks);

• - If E^a a and b relate to each other as complementary goods (for example, a car and gasoline);
• - If E^a= 0, then goods a b are not related to each other.

To calculate cross elasticity, we also use two indicators already known to us - the point indicator of cross elasticity and the indicator of cross elasticity on a segment.

1. Point cross elasticity of demand is calculated using the following formula:

where (2 La(Pb) ~ first derivative of the demand function for a product A according to the price of the product b 0 Oa- volume of demand for the product A; Rb - product price b.

2. Cross elasticity of demand on the segment:

Where R b( And R'. 2 - original and new value of the product price b; 0, O(1( and (Er - volume of demand for goods A before and after changing the price of a product b.

To complete the analysis of the concept of elasticity of demand, we note that the sum of the indicators of direct and cross elasticity of demand along the chain and the indicator of income elasticity of demand for any product is equal to zero:

This expression in microeconomics is known as "rule of correlation between indicators of elasticity of demand." Leaving aside the proof of this rule, we note that it is valid only for a closed market system, where income is completely spent on the consumption of two goods.

Elasticity of supply.

As with demand, the concept of elasticity also applies to supply analysis. Considering that supply, like demand, depends on a number of chain and non-price factors, the corresponding indicators of the elasticity of supply for one or another factor are calculated.

Price elasticity of supply - It is the ratio of the percentage change in the quantity supplied of a good to a certain percentage change in its price. This indicator characterizes the degree of reaction (sensitivity) of the supply of a product to a change in its price and shows by what percentage the volume of supply will change when the price of the product changes by 1%.

IN general view The formula for calculating the price elasticity coefficient of supply can be presented as follows:

The elasticity of supply, like the elasticity of demand, can vary from 0 to infinity. With the same caveats, different degrees of elasticity of supply can be illustrated by different slopes of the supply line. The vertical line corresponds to perfectly inelastic supply (Er=0), a line close to vertical corresponds to inelastic supply (Er < 1), линия, близкая к горизонтальной - эластичному предложению (Er>), and if it takes a horizontal position, then its position will correspond to an absolutely elastic supply (Er = °°).

The main factor influencing the price elasticity of supply is the time period. In particular, in the instantaneous period, supply is completely inelastic; in the short-term period, supply begins to respond weakly to changes in market conditions,

t.s. supply is characterized by low elasticity, and in the long run supply becomes highly elastic.

In addition to the time factor, the elasticity of supply is also influenced by other factors, among which we highlight the following:

• - prices for interrelated goods, including prices for resources, which, by analogy with demand, affect the cross elasticity of supply;
• - the ability of the product to be stored for a long time and the cost of its storage;
• - the level of resource use, which acts as a kind of limiter on the response of supply to price changes. Moreover, it is obvious that in the case full use resources and the lack of their reserves makes supply completely inelastic;
• - the degree of monopolization of the industry where the product is produced;
• - technological features of establishing the production of goods (construction of sea vessels or baking).

The relationship between the elasticity of demand along the chain and the income (revenue) of the seller.

The concept of elasticity, especially price elasticity of demand, has direct relation to the pricing policy of manufacturers. When setting the price for his product, as well as when determining price premiums or discounts, the manufacturer is forced to capture those changes that occur in the market and have anything to do with changes in the elasticity of demand for his product. If he does not have the opportunity to take into account changes in the market in prices, this may lead to the loss of part of the profit or the entire market. This circumstance is due to the fact that there is a close connection between the price elasticity of demand and the income (revenue) of producers (sellers). Therefore, ideas about price elasticity are always taken into account by manufacturers (sellers) when developing a strategy for their market behavior.

To analyze the relationship between the price elasticity of demand and the seller’s revenue, it is necessary to clarify what is meant by the seller’s revenue. Seller's total revenue TR(from English, total revenue - gross income) is the product's price multiplied by the number of units sold:

In Fig. 2.31 it is clear that in the range of a decrease in the price of a product from R x to R When demand is sufficiently elastic, total revenue increases. This happens because with highly elastic demand, a decrease in the price of a product is accompanied by a powerful increase in the volume of demand for it, as a result of which the revenue of sellers increases. Revenue growth in the context of a decrease in the price of a product occurs until the elasticity of demand becomes equal to 1, and the amount of revenue reaches its maximum. Further price reductions ranging from R" to 0, when demand becomes inelastic, total revenue, on the contrary, decreases. The drop in revenue is due to the fact that with inelastic demand, each

a certain reduction in price leads to relatively smaller increases in the volume of demand, which does not make it possible to compensate for the effect of a falling price with a corresponding increase in the volume of demand.

Rice. 2.31.

Let us pay attention to the fact that a reverse increase in price will lead to the opposite change in revenue, i.e. with inelastic demand along the chain, revenue will increase until demand becomes equal to 1, and then further price growth will move into the demand range, which is characterized by high elasticity, and revenue will begin to decline.

Cross (mutual) elasticity of demand also deserves attention, which expresses the degree of sensitivity of demand for a certain product to changes in the price of another product. The cross elasticity coefficient shows by what percentage the demand for a given product will change when the price of another product changes by 1%:

Where is the relative change in demand for product X; - relative change in the price of product Y.
The sign of the cross elasticity coefficient depends on whether the goods are substitutes, complements, or neutral to each other. These options are shown in Fig. 10.3.

Curve B (Exy Curve C (Exy> 0) reflects positive cross elasticity: with an increase in the price of product Y, the volume of demand for product X increases, i.e., there is a kind of switching of demand from product Y to product X. In this
In this case, goods are interchangeable (substitutes), for example, bus and subway, sweets and cakes, coffee and tea.
Curve D (E xy = 0) expresses zero or close to zero cross elasticity: a change in the price of product Y has no or very little effect on the demand for product X. Such goods are called independent, or neutral, for example, an increase in the price of hats is unlikely to affect demand for boots.
Consequently, the concept of elasticity of demand is very useful in studying the reaction of consumers under the influence of certain factors. Depending on the degree of elasticity of demand, entrepreneurs can predict and determine the behavior of their enterprises.
The problem of studying demand is not only a problem for buyers and sellers, who must have sufficient information about the dynamics of demand for manufactured goods. Demand interests and government bodies, first of all tax system, since it is necessary to know how an increase or decrease in tax rates can affect changes in demand, which will ultimately affect a reduction or increase in tax revenues to the budget. In this case we are talking about indirect taxes, or taxes that are included in the prices of goods. These are excise taxes on goods of low elastic demand (salt, matches), or goods considered harmful from the point of view of society (alcohol, tobacco), or value added tax. This aspect of demand elasticity is discussed below in relation to supply elasticity.

You can also find information of interest in the Sci.House electronic library. Use the search form: