Elasticity of demand

This refers to how sensitive the demand for goods or services is to changes in price and refers to the impact of a change in price on the demand for the product or service.

It is also known as price elasticity of demand, it gives a percentage change in the estimated quantity demanded for each 1% change in price. Price Elasticity of Demand is calculated as the % Change in Quantity Demanded / % Change in Price. If a small change in price results in a large change in quantity demanded, the product is said to be elastic; similarly, a product is inelastic if a large change in price results in a small change in quantity demanded.

Elasticity of demand is a term normally found in business economics, strategic planning and financial management.

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