How does elasticity affect a company's pricing policy?

Price elasticity determines whether a company will increase their prices when their expenses rise or not.

If a product has high elasticity, a company will avoid raising prices when expenses go up to avoid a fall in demand that would significantly reduce revenues. If a new tax is incurred on a company that makes pizza, and customers are more likely to buy fewer pizzas if the price rises, the company must take other steps or incur lower profits to absorb the tax. If the price has low elasticity, companies will raise prices to pass on higher expenses knowing that they will not see revenues fall.