Price elasticity of demand measures how sensitive consumers are to price changes for a particular product. By understanding this concept, businesses can make more informed decisions about pricing strategies. The best way to accurately calculate elasticity is through the midpoint method . Here’s everything you need to know about price elasticity of demand, how to calculate it, and its implications for your business. What is Price Elasticity of Demand? Price elasticity of demand (PED) indicates how much the quantity demanded of a product changes in response to a price change. In simpler terms, it shows how flexible or "elastic" demand is when prices fluctuate. Products can either be elastic or inelastic based on their sensitivity to price changes. Elastic demand : When the PED is greater than 1, demand is highly responsive to price changes. Luxury items, non-essential goods, and products with close substitutes tend to have elastic demand. Inelastic demand : When the PED is be...
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