Price elasticity of demand is an important tool for managers in a selling environment, in deciding what to put on sale. Discuss how managers of over the counter healthcare products could use the concepts of elasticity to maximize profit.

If managers of OTC healthcare products want to use the concept of elasticity to maximize their profits, they can do so by:

• Identifying the nature of drugs sold- prescription drugs have inelastic demand, and therefore an increase in their prices does not cause a difference in the amount demanded.
• Dividing customers into different segments- high-income earners have an inelastic demand while low-income groups have a relatively elastic demand. This means that identifying the type of customers can help reap maximum profits by charging higher income groups higher prices.
• Substitutes- products with close substitutes have elastic demand, and therefore a slight change in the price leads to a considerable difference in the quantity demanded. Thus the store manager can set higher prices for products that do not have close substitutes.

Elasticity affects the effectiveness of a pricing strategy and taxation policies.