Economics

The economic concept of elasticity refers to the change in one economic quantity in response to another economic quantity. Moreover, we are interested in the magnitude that one quantity changes in response to another quantity that it is dependent upon. This is what elasticity measures. If the dependent quantity does not vary much when the first quantity is varied, we term their relationship as relatively inelastic. When a small change in one factor creates significant changes in another, then their relationship is considered highly elastic. Some examples of elasticities include the income elasticity of demand - which measures the response in the demand of a product following an increase in income of the products market - and the price elasticity of demand  which measures the demand of the product in response to price changes.
The importance of these elasticities to the leader of the firm is rooted in how these elasticities forecast the demand for the firms product. Managers should know how their product is seen by the market and what factors will greatly increase or decrease the demand for their goods. Knowledge of these elasticity factors will also help the firm in determining how they will position and promote their product against all competing and complementary products in the marketplace.
For example, products with negative income elasticity of demand are termed inferior goods. This means that as the individual person gets more income then he or she purchases less of the product as opposed to superior goods which the public purchase if their income increases. Being aware of this could help a manager many ways. If he knows that his product is an inferior good, then the manager can then make moves to increase his products visibility and marketing efforts towards less affluent communities  communities where demand for his product is higher according to the income elasticity of demand. The same is true for the opposite case, products which are purchased in greater quantities by wealthier individuals should be sold to wealthy individuals. Products with zero income elasticity could be marketed at the same strength across all income strata. The usefulness of the income elasticity of demand is all in knowing what segments of society have higher demand for the product.
If income elasticity of demand could help in marketing, price elasticity could help in pricing. The law of demand states that all products will have non-increasing demand as the prices go up While supply and demand tells us that the equilibrium price is the best possible state since at this point, demand equals supply this is beneficial only for the market. The equilibrium price and quantity does not have to be the point at which the firms revenue on the product is the greatest. The relevant question now is this will the company make more revenue by pricing above or below the market equilibrium price If the product has relatively elastic demand, then any small change in price will result in a great increase in demand. This means that the company would have more revenue by pricing their product lower since the lower per unit revenue would be compensated for by the increase in demand for the product. The opposite is also true. If the products demand is relatively inelastic, then even if the price is increased, the magnitude in decrease of demand is less than the magnitude in increase of the price. The company can therefore feel free to increase prices since the corresponding drop in demand will be compensated for by the increase in per unit price.