Banking Term: Price Elasticity of Demand
Jun 22, 2015 14:56 IST
- Elasticity of Demand describes the degree of responsiveness of quantity demand of a good to change in its price. This is also known as price elasticity of demand.
- It is also called A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price.
- When price elasticity of demand is elastic, the firm should lower prices, since it will result in a big uptick in demand, increasing your total revenue. When price elasticity of demand is inelastic, you should increase prices because there will be only a small decrease in demand, and again, total revenue will increase. When price elasticity of demand is unit elastic, changing the price will not change total revenue, since price and quantity will generally change in lock step with each other.