Theories of Price Elasticity

Theories of price elasticity explain how sensitive consumers are to price changes. If demand is elastic, a small price increase causes a big drop in sales, while a decrease boosts sales significantly. If demand is inelastic, price changes have little impact on quantity demanded. Factors influencing elasticity include the availability of substitutes, necessity versus luxury, and the time consumers have to respond. These theories help businesses and policymakers predict how price changes will affect sales, revenue, and market behavior by understanding consumer responsiveness to pricing.