Price Elasticity Of Demand Measures Flashcards, test questions and answers

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What is Price Elasticity Of Demand Measures?

Price elasticity of demand measures the responsiveness of demand for a product or service to changes in its price. It is an important concept in economics and business studies, as it helps to determine how prices affect the quantity of goods demanded.Price elasticity of demand indicates how much more or less a customer is willing to pay for a product when its price changes. If the price elasticity of demand is high, then customers are very sensitive to changes in pricing and are likely to stop buying if prices increase significantly. On the other hand, if the price elasticity of demand is low, then customers may not be so affected by small changes in pricing and may continue buying even when prices increase significantly. The formula for calculating price elasticity of demand is (Percentage Change in Quantity Demanded / Percentage Change in Price). This formula can be used to calculate both elastic and inelastic demands for products or services. Elastic demands indicate that customers are more sensitive to changes in pricing whereas an inelastic demand indicates that customers are less sensitive and will not change their purchasing behavior regardless of any change in pricing. The degree of price elasticity can also vary from industry to industry depending on factors such as market structure, competition level, brand loyalty and availability of substitutes. For example, luxury items such as cars tend to have an higher degree of price sensitivity than staples such as food which tends have an lower degree. In conclusion, understanding the concept of price elasticity helps businesses set prices that maximize profits while keeping their customers satisfied with their purchases at all times. By studying customer behaviour closely, businesses can adjust their marketing strategies accordingly by taking into account their own competitive advantages and market conditions within their industry sector – ultimately leading them towards achieving long-term success.