Price elasticity

Price elasticity measures the responsiveness of quantity demanded of a product to changes in its ‘ own price. Price sensitivity may vary around your different customers. An appropriate Customer Segmentation@marketing needs to include Pricing@marketing as a very important criteria.

Elastic demand

Products with a price elasticity of demand greater than 1 are said to have a relatively elastic demand they are said to be price elastic.Simpler said an elastic demand is when demand 'does respond to price changes. With a price elastic demand:

• an increase in price causes such a large fall in quantity demanded that total revenue falls;
• a reduction in price causes such a large increase in the quantity demanded that the total revenue rises.

Inelastic demand

Products with a price elasticity of demand of less than 1 are said to have a relatively inelastic demand with respect to price they are said to be price inelastic. Simpler said an inelastic demand is when demand does not respond to price changes. Inelastic demand occurs when there are no alternative products: consumer have nowhere to go....

With a price inelastic demand:

• an increase in price causes
  • a reduction in quantity demanded
  • but total revenue increases
• a fall in price causes
  • an increase in quantity demanded
  • but total revenue earned declines