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Price Elasticity of Demand - Coggle Diagram

- - - - If demand of a good is price elastic, producers will choose to reduce their price of the good in order to increase the revenue generated from sales. thus, there are often discounts for goods that have price elastic demand.
      - If demand of a good is price inelastic, producers will increase price to increase total revenue
    - - if demand of a good is price inelastic, an increase in price of the good leads to an increase in revenue, thus, mass production is not preferred as revenue will fall; on the other hand, if demand of a good is price elastic, a fall in price of the good will cause revenue to increase, thus mass production is chosen, and price is lowered.
    - - Producers can try to make the demand of their good more price inelastic so that they are able to increase the price of the good without decreasing their total revenue. that can be done through product differentiation such as branding and promoting customer loyalty.
  - - - if the government raises tax revenue through indirect taxation, it should tax goods that have price inelastic demand. this is because the effect of taxation is going to be passed down to the consumers from the producers, and it will cause a rise in price. If the demand is price inelastic, a rise in price of the good will lead to a less than proportionate decrease in quantity demanded of the good, thus allowing the government to be able to collect more tax revenue. However, if the demand of the good is price elastic, an increase in price of the good will cause a more than proportionate decrease in quantity demanded, allowing the government to collect lesser tax revenue.
    - - the use of taxes to discourage consumption of socially undesirable goods is more effective the more price elastic the demand of the good is. If the good has price elastic demand, only a small amount of tax per unit output is required to reduce the quantity demanded significantly. However, if the demand is price inelastic, even with a large amount of tax, quantity demanded may not reduce very much. thus, when demand is price inelastic, a very high tax is imposed to reduce demand to desired levels (or national campaigns, bans/ legislation of sale of good)