Price Elasticity of Demand
Price Elasticity of Demand measures how sensitive the quantity demanded of a good or service is to changes in its price. If a small price change leads to a large change in quantity demanded, the demand is considered elastic; if quantity demanded changes little with price changes, it is inelastic. For example, luxury items often have elastic demand, while necessities like bread usually have inelastic demand. Understanding this concept helps businesses and policymakers forecast consumer behavior and set pricing strategies effectively.
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Price elasticity of demand refers to how sensitive the quantity demanded of a good or service is to changes in its price. If a small price change leads to a large change in the quantity demanded, the demand is considered elastic. Conversely, if a price change has little effect on the quantity demanded, the demand is inelastic. Understanding price elasticity helps businesses and policymakers predict how consumers will react to price changes, influencing decisions on pricing, production, and taxation. For example, luxury items often have elastic demand, while necessities tend to have inelastic demand.