Knowledge of PED has implications for decision making by consumers, producers and the government. Essentially, it can provide valuable information about how the demand for different products is likely to change if prices are adjusted.
The ways producers find to change there price of allocation
Helping producers to decide on their pricing strategy — for example, a business with price inelastic demand for its products is likely to increase prices, knowing that quantity demanded will hardly be affected. Therefore, the firm will benefit from higher sales revenue when selling its products at a higher price.
Price discrimination — This occurs when fi rms charge different customers different prices for essentially the same product because of differences in their PED. For example, theme parks charge adults different prices from children and they also offer discounts for families and annual pass holders.
Deciding which products to impose sales taxes on — taxing price inelastic products ensures the government can collect large sums of tax revenue without seriously affecting the overall demand for the product (so there is minimal impact on sales revenues and jobs). Producers can also decide how much of the tax can be passed onto customers
Determining taxation policies — knowledge of PED can help governments to determine taxation policies. For example, the government can impose heavy taxes on demerit goods , such as petrol and cigarettes, knowing that the demand for these products is price inelastic.