Elasticity measure the responsiveness of demand and measure the extent to which changes in price affects the demand of a product
Price Elasticity of Demand
% change in quantities demanded / % change in price
Price Elastic
PED = More than 1
Price elastic products are where change in demand is more than change in price
Price Inelastic
PED = Less than 1
Price Inelastic products are where change in price has little effect on demand.
Unitary Price Elasticity
PED = 1 (Exactly)
Unitary Price Elasticity is where change in price equals change in quantity demanded.
If PED is >1 (Elastic) than a change in price will cause a larger change in demand. Meaning revenues will increase with price cut and fall with a price increase
If PED is <1 (Inelastic) then a change in price will minimal change in demand
Factors influencing PED includes: Brand Strength, Necessity, Habit and Availability of substitutes.
