price elasticity

Price elasticity of supply enables businesses to: plan future output in advance in response to price changes; estimate their ability to react to expected changes in demand; calculate how the imposition of a specific tax is likely to affect market price and ideal level of output; to calculate any benefits associated with a government’s decision to grant a subsidy; to calculate any benefits associated with price changes due to changes in the exchange rate; if a business can increase its price elasticity of supply it can react quickly to changes in demand and therefore gain more profits;

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