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Price elasticity of demand

The responsiveness of demand to a change in the price of a product.

Price elasticity of demand refers to the sensitivity of demand for a product to changes in its price. In other words, it measures how much the quantity demanded of a product changes when its price changes. Here's why it's important for businesses:

  • Price optimization: By understanding the price elasticity of demand for their products, businesses can optimize their pricing strategy to maximize revenue and profits.
  • Competition: Knowing the price elasticity of demand for a product can help a business understand how its price compares to its competitors and how a change in price will affect demand.
  • Marketing: Understanding price elasticity can help businesses make informed decisions about advertising and promotion, and determine the most effective strategies for increasing demand and sales.
  • Pricing strategy: Price elasticity of demand can also help businesses determine whether they should use price discounts, price increases, or price bundling to achieve their sales goals.

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