Price Elasticity Of Demand

Loading the player...

Price elasticity of demand describes how changes in the cost of a product or service affect a company’s revenue.

For some products, a small change in price will dramatically influence how many units the customer will buy. In other cases, price movements have little effect on demand. Therefore, understanding the price elasticity of each offering is crucial to maximizing profit.

Several factors can affect the price elasticity of products. For example, if substitute goods are readily available, the customer will immediately curtail purchases when the price rises. And if the good represents a major part of the buyer’s total spending, he or she will be more likely to shop based on price.

Understanding how consumers value a product can be vital for any company. Raising prices can be one of the easiest ways to boost profits, but only if consumers are willing to accept the added cost.


Related Videos

  1. What Is Elasticity?

    Elasticity measures the relationship between a good and its price based on consumer demand, consumer income, and its available supply. Learn the basics about it here.
  2. Microeconomics Vs. Macroeconomics

    Economics is divided into two broad categories: micro and macro. Find out what the difference is between them and where they overlap.
  3. Common Size Balance Sheet

    Investopedia explains: A common size balance sheet is a valuable tool for tracking and analyzing the changes and performance of a business over multiple time periods.
  4. Financialization

    Financialization is an increase in the size and importance of a country's financial sector relative to its overall economy.
  5. Veblen Good

    Named after economist Thorstein Veblen, who introduced the term "conspicuous consumption," a Veblen good is one whose demand increases as its price increases because consumers see it as an exclusive status symbol.
  6. Stock Buyback/Repurchase

    A stock buyback, or repurchase, occurs when a company buys its own shares off the market and therefore reduces the amount of stock outstanding.

comments powered by Disqus
Related Slideshows
  1. 5 Products Canadians Pay Way More For

    Here are certain categories of goods and services that are usually cheaper in the U.S. than in Canada.
  2. 5 Most Expensive Ebay Auctions

    Check out the most expensive items listed on eBay - items that are sure to bring a hefty profit to the seller if sold.
  3. 5 Overpriced Dishes In America

    These are some of the fanciest and most expensive restaurant dishes available in the U.S.
  4. 5 Ways To Be Irreplaceable At Work

    Use these tips to position yourself as an indispensable employee, and increase your job security.
  5. 7 Ways To Be More Productive At Work

    These tips will not only make you a better employee, they'll make you a healthier person.
  6. 5 Reasons Why Companies Care About Their Stock Prices

    We all know that publicly traded companies are enthralled by their stocks, but why? Here we take a look at the top 5 reasons why companies care so much about their stock prices.
Trading Center