Columbia Southern University| MBA 6053 – Economics for Managers | Columbia Southern University
The importance of considering elasticity in pricing decisions is paramount to any business’s success. Businesses can use elasticity to determine how price changes affect customers demand, profits margins, and overall revenue. This allows them to make better decisions about pricing strategies. Businesses must understand the interaction between price changes and customer choice behavior in order to create a pricing strategy that is profitable while satisfying customers. Companies can suffer financial loss if they overlook or ignore elasticity factors when pricing products. This could result in missed sales opportunities and possible drops in customer demand due to overpricing. Additionally, relying solely on costs when determining prices can be problematic since it may lead companies into believing they are being profitable when in fact they could be missing out on other market opportunities where higher profits could be gained through charging a slightly higher rate than what they currently do that would still attract customers’ attention and willingness to purchase the product/service. Before deciding on a price, it is important for managers to consider both the costs of their products and their elasticity.