Price elasticity refers to the measure of responsiveness of the quantity demanded of a good or service to a change in its price. It indicates how sensitive customers are to price changes.
- Calculated as the percentage change in quantity demanded divided by the percentage change in price
- Goods with close substitutes have high elasticity while necessities have low elasticity
- Crucial factor for determining optimal pricing strategies
Elastic goods experience large changes in demand from small price fluctuations. Inelastic goods see smaller impacts, allowing more pricing power.
Factors like product importance, available alternatives, customer loyalty, and time frame influence measurements on the elastic-inelastic spectrum.
Understanding elasticity aids pricing optimized for profit versus volume goals. It also informs viability of tax increases for governments.
Overall, elasticity data empowers pricing as a strategic sales and marketing lever based on quantified customer behaviors.