Price Sensitivity

DEFINITION of 'Price Sensitivity'

The degree to which the price of a product affects consumers purchasing behaviors. The degree of price sensitivity varies from product to product and from consumer to consumer. In economics, price sensitivity is commonly measured using the price elasticity of demand.

BREAKING DOWN 'Price Sensitivity'

Widely available, homogeneous goods are more likely to exhibit high price sensitivity. For example, consumers are often not willing to pay even a few extra cents per gallon for gasoline, especially if a lower-priced station is nearby. Some consumers are more price sensitive than others. Consumers who are more frugal or who are on fixed incomes are more likely to pinch pennies and shop around for lower prices. Meanwhile, some high income consumers may feel it is not always worth their time to search for better deals on many items, and thus become less price sensitive.

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