Lesson - Chapter 2.7.2 , Content from SaveMyExams Economics IGCSE

• Knowledge of PED is important to firms seeking to maximize their revenue

  
  

  • If their product is price inelastic in demand, they should raise their prices

    
    

  • If price elastic in demand, then they should lower their prices

    
    

  • Firms can choose to use price discrimination to maximize their revenue i.e. lower prices for certain segments & higher prices for others

  • Price discrimination is when private firms sell the same product or the service to customers in different prices , to increase there revenue

• Knowledge of PED is important to Governments with regard to taxation and subsidies

  • If they tax price inelastic in demand products, they can raise tax revenue without harming firms too much

  • Consumers are less responsive to price changes so firms will pass on the tax to the consumer

  • If Governments subsidies price elastic in demand products, there can be a greater than proportional increase in demand