2.2.8—Elasticity and decision-making

PED informs pricing and total expenditure; YED helps forecast demand as incomes change; XED indicates how a rival or complement’s price may affect demand.

Use the sign and magnitude with the decision’s objective. A firm seeking revenue may raise price when demand is inelastic, while a government assessing a tax or subsidy must consider related goods and income effects.

A luxury retailer with positive YED may plan for stronger sales in an expansion; a bus operator may find a fare rise raises revenue only if demand is sufficiently inelastic.

Elasticity gives a conditional forecast, not a guaranteed profit result: costs, competition and capacity also matter.