Price Elasticity

Also known as: Price Elasticity, Demand Elasticity, Price Sensitivity

Measure of demand sensitivity to price changes: how much demand falls when price rises.

Price Elasticity of Demand (PED) measures the sensitivity of quantity demanded of a product to changes in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Inelastic products (PED < 1 in absolute value): demand falls little when price rises (e.g., essential medications, cigarettes). Elastic products (PED > 1): demand falls significantly with price increases (e.g., commodities, non-essential luxury goods).

In market research, price elasticity is estimated through Gabor-Granger, Conjoint Analysis, and analysis of historical sales and price data (MMM). Knowing elasticity is essential for price increase decisions, promotions, and portfolio strategy.