What is elasticity of demand?


Quick Answer

Elasticity of demand is an economics term meaning the relative change in quantity demanded for a good based on a particular price change. High price elasticity means that a particular change in price causes consumers to significantly reduce the amount of goods purchased.

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Full Answer

When price elasticity is extremely high, a price increase often causes consumers to dramatically reduce volume and to seek alternative product options. In contrast, low price elasticity means customers are less price sensitive. Therefore, an increase in price would have a relatively modest impact on the level of goods demanded. Business operators evaluate price elasticity to ensure optimal pricing strategies for generating revenue and profit.

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