Price elasticity of demand is a measure of how responsive the quantity demanded of a good or service is to a change in its price. Marketlo – Price elasticity is calculated as the percentage change in quantity demanded divided by the percentage change in price. The same is the case of price elasticity in supply. A good or service is considered to be price elastic if a small change in price results in a large change in quantity demanded, and inelastic if a large change in price is needed to change the quantity demanded.
Marketlo – Price elasticity modelling can be beneficial for businesses in a number of ways. It can help companies:
- Understand how changes in prices will affect demand for their products or services.
- Determine the optimal pricing strategy for their products or services.
- Identify customer segments that are more or less responsive to changes in price.
- Make more informed decisions about promotions, discounts, and other pricing strategies.
- Estimate the potential revenue impact of changes in price.
- Estimate the impact of price changes on profit margins.
- Anticipate the impact of competitors’ price changes on their sales.