Understanding price demand elasticity
The concept of price elasticity is used when trying to explain the responsiveness of the number of goods sold to proportional increases in price. This is valuable information for managers that need to anticipate how the finance of the company will be affected by price rises and cuts.
Mathematically, it is as follows:
Here, each term represents the following:
: Price elasticity- Q: Quantity of the demanded good
: Variation in the quantity of the demanded good- P: Price of the demanded good
: Variation in the price of the demanded good
Price elasticity is a measure of how sensitive the quantity required is to price, with nearly all goods seeing a fall in demand when prices rise but some seeing a greater decline. Price elasticity determines, while holding all other factors constant, the percentage change in quantity demanded by a 1% rise in price. When the elasticity is -2, the amount demanded decreases by 2...
