Price Elasticity

Price Elasticity

1. Demand

   • Measures the amount that customers are willing and able to purchase
   • External factors can influence what products consumers buy
   • Marketing influences demand
   • Prices + benefits that rivals offer

2. Why does it matter?

   • Percentage change in quality demanded / percentage change in price
   • You may need to employ more people
   • Will the price cut/increase be a negative thing?

3. Negative

   • It is always negative but you ignore it
   • Demand is price elastic if the number is bigger than 1
   • The bigger the number, the more affected by price

4. Inelastic

   • Inelastic if the value is less than 1
   • Not very sensitive to price changes

5. Factors

   • Availability of similar products
   • Type of product
   • Cost of item
   • Demand for brand vs product

6. Problems

   • Its an estimate
   • Could be new products
   • Consumer tastes
   • Government policies

7. Price discrimination

   • Rush hour buses will be dearer because customers need to use the bus
     • They will be price inelastic
   • 2am buses will be cheaper + price elastic