Explanation:
In the modern microeconomics, price elasticity measures the correlation between variation in demand and variation in price. If the market is elastic, a small change in price results in a significant change in sales volume. If the market is inelastic, a significant change in price results in a small change in sales volume. Therefore, the pricing strategy will be different depending on whether the market is elastic or inelastic:
If the market is elastic, the increase in profits implies a decrease in the price.
If the market is inelastic, an increase in profits implies a price increase.
