Answer to Question #114715 in Microeconomics for Abizar Chitalwala

Question

Discuss how entrepreneurs might be able to make goods more price inelastic. Why might they be happier to change the price of a good that is price inelastic rather than one that is price elastic.

Answer 1

Entrepreneurs might be able to make goods more price inelastic by increasing the price for those goods said to be inelastic such as basic goods which people can not do without.

If the price is increased and the demand does not change the total revenue increases.

Why the entrepreneurs might be happier to change the price of a good that is price inelastic rather than one that is price elastic:This is because

• price inelastic commodities are often taxed fairly heavy
• price inelastic goods have fewer close substitutes
• price in-elasticity enhance pricing flexibility and profit maximization
• firms that deal in inelastic goods can transfer the extra cost of production to their customers without adversely affecting the demand