Demand Elasticity
Demand elasticity measures how sensitive the quantity demanded of a product is to changes in price or other factors. If a small price change significantly affects how much people buy, the demand is considered elastic. Conversely, if price changes have little effect on sales, demand is inelastic. For example, luxury items often have elastic demand; when prices rise, people buy less. Basic necessities, like food, tend to have inelastic demand since people will buy them regardless of price changes. Understanding this concept helps businesses and policymakers make informed decisions about pricing and market strategies.
Additional Insights
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Demand elasticity measures how sensitive the quantity demanded of a product is to changes in its price. If a small price change leads to a large change in demand, the product is considered elastic. For example, luxury items often have elastic demand; if prices rise, people might buy less or substitute with cheaper options. Conversely, inelastic demand means quantity demanded changes little with price fluctuations, typical for essential goods like medicine. Understanding demand elasticity helps businesses and policymakers make informed decisions about pricing, production, and taxation.
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Demand elasticity measures how sensitive the quantity demanded of a product is to changes in its price. If demand is elastic, a small price increase leads to a significant drop in sales; if inelastic, sales remain relatively stable despite price changes. For example, luxury items often have elastic demand—people may buy less if prices rise. Conversely, necessities like bread usually have inelastic demand, as consumers continue to purchase them regardless of price fluctuations. Understanding demand elasticity helps businesses set prices strategically and anticipate changes in consumer behavior.