BIZ SPONZORS
popular biz reading
Marketing Mix: Promotion
Employee Turnover
Marketing Mix: Price
Planning and Organizing
Maslow's Hierarchy of Needs
Key Performance Indicators
Sustainable Competitive Advantage
Ishikawa Fishbone Diagram
Price Determination
Supply Chain Concept
Employee Induction
3 Basic Finance Statements
Sales Forecast Accuracy
FMCG Sales Boosting
OTIF - On Time In Full
Merchandising at the Point of Sales
Promotion Mix: Advertising
Employee Motivation
Porter's 5 Forces
CHECK ON BIZ DEVELOPMENT
biz sponsors
BrainCast Relaxation
Advertise on Biz Development
My BrainCast
Energy Booster
Twitter
biz archive
2012
2011
2010
2009
2008
2007

My Introspective

by Laurus Nobilis
My BrainCast

Sales Force

Price Elasticity of Product Demand (B)

 

Price Elasticity of Demand

 

What is measured by price elasticity of demand? What are the basic price elasticity of demand models?

 

Posted: Aug 2008


 

 

Price elasticity of product demand is measuring the relation of price and demand for the product. The price variation is influencing product demand in different ways. As a general rule the price increase is causing demand decrease.

But this general rule has several different situations. The demand does not change at the same proportion for every product. Some product are more sensitive, while some other are les sensitive. The life necessary commodities are usually less sensitive, meaning that the demand will change at the smaller rate than the price. The luxury products or products that can be substituted are changing at the greater rate than the priice change. This relation of price and demand is called price elasticity of demand. 

Relatively Inelastic Demand

Relatively Inelastic Demand is the situation when price ( p ) change does not change the demand ( q ) at the same rate. If the price increase for certain percentage, the demand will be reduced but only for the smaller percentage. Also, if the price decrease, the demand will not go up for the same percentage. The life necessary product like food or clothing are characterized by this elasticity of demand model. 

Perfectly Inelastic DemandPerfectly Inelastic Demand is more the theoretical extreme, but the core products, like bread or water have demand elasticity approximate to this model. no matter what is the price of bread you will still need it.

 

 

 

Relatively Elastic DemandRelatively Elastic Demand is the situation when price change at the certain percentage is causing change in demand of even greater percentage. The relatively inelastic demand is typical for luxury products. In the period of reduced income people try to cut travels, luxury products and unnecessary spending. When the income is increased the consumers are buying more luxury goods.

 

The demand does not change at the same proportion for every product. Some product are more sensitive, while some other are les sensitive. The life necessary commodities are usually less sensitive, meaning that the demand will change at the smaller rate than the price.



 

 

 

 

Perfectly Elastic Demand

 

 

 

 

 

Perfectly Elastic Demand special example of price elasticity when any change of price is reducing demand to zero. 

 

 

 

Another elasticity model is the unit ( unitary ) elasticity. This elasticity model is descripting the situation when the change of price of X percentage is causing the X percentage change of demand. This apply to both situation, the price increase and price decrease.

 

 

 

 

My BrainCast Self Improvement
blog comments powered by Disqus
 
     
My BrainCast My BrainCast energy Booster My Braincast Deep Sleep
My BrainCast Mandala Meditation My BrainCast Relaxation
my-braincast