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1) The price elasticity of demand
The issue of price elasticity of demand is very important to all organisations because it gives them positive ideas on how they should control price levels for products. “The concept of price elasticity of demand is measuring the responsiveness of quantity demanded to the change in price of a product” ( John Sloman, 1991: 42). It measures how much the demand for the product changes in response to a change in price. The response of demand to a product can change determine on a number of different variables, but changing to price is the main variable. If the company is able to work out the price elasticity of demand for a product, this enables them to predict the effect of changes in price on the demand for a product. The common law of price elasticity of demand is that the larger the price of the good, the less the consumers will purchase that good but this is not always the case. The measure of price elasticity of demand all depends on the consumer’s price sensitiveness towards that certain product. The price elasticity of demand changes for every product, therefore organisations only have more market power on certain products. Organisations could increase some products prices without having to worry about its effect on the demand whereas consumers could be more price sensitive on other products.
The price elasticity of demand of products can be measured on a scale, showing organisations how ‘elastic’ or ‘inelastic’ the demand is on the certain product.
Approximate Word count = 1261
Approximate Pages = 5
(250 words per page double spaced)
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