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» Economics » Marketing » Topics begins with P » Price elasticity

Page modified: Tuesday, July 12, 2011 22:26:15

By price elasticity one understands of different economic sizes in the political economy concerning price adjustments. In particular one understands by it (after Alfreds Mars-resound) the demand elasticity. It indicates, how strongly a price adjustment affects with a property the demand. One can calculate with it thus, as strongly the potenziellen buyers of a product react to a price adjustment.

Price elasticity of the demand

With the competition around the most exact estimate of the customer behavior in marketing the observation helps the price elasticity of the demand with the organization of a strategic price strategy. Contrary to operational price measures, which serve for example the brief Abverkauf of season commodity or the guidance of competition actions, the knowledge of the price elasticity of the demand in the market has a strategic meaning. It is among other things seized, starting from which market price lowers an increase of the prices the set off quantity so strongly that the gross income is smaller than before the price increase. Also if the paragraph of a product or a service stays behind expectations, one can determine with the help of the elasticity whether a price reduction is meaningful.

The price elasticity (PE) is defined divided as "relative quantity alteration by relative price adjustment":

\ eta_ {x, p} = \ frac {\ frac {\ partial x} {x}} {\ frac {\ partial p} {p}} = \ frac {\ partial x} {\ partial p} * \ frac {p} {x}

or with absolute numbers:

\ eta_ {Q, P} = \ frac {\ frac {(Q_ {2} - Q_ {1})}{Q_ {1}}} {\ frac {(P_ {2} - P_ {1})}{P_ {1}}}.

(see example standing down).

Explanation: Q=Menge (Q2-Q1) P=Preis (P2-P1)

During the interpretation of the price elasticity usually the minus sign is neglected and only the absolute amount is consulted:

If the absolute value of the price elasticity is larger than 1, one speaks of a "flexible demand". Thus a 1-prozentige price adjustment causes one more than 1-prozentige quantity alteration.


  • \ eta_ {x, p} = \ infty: The demand is perfectly flexible (elastic that and); a minimum price adjustment causes a maximum quantity alteration
  • \ eta_ {x, p} > 1: The demand is flexible (elastic that and); a price adjustment causes a superproportional quantity alteration
  • \ eta_ {x, p} = 1: The demand is unit flexible (unit elastic that and); a one percent price adjustment causes a one percent quantity alteration (momentary without picture)
  • <math> \ eta_ {x, p} < 1</math>: The demand is inelastic (inelastic that and); a price adjustment causes a under-proportional quantity alteration
  • \ eta_ {x, p} = 0: The demand is perfectly inelastic (inelastic that and); a maximum price adjustment does not cause a quantity alteration
  • <math> \ eta_ {x, p} < 0</math>: The demand is negatively flexible;

The case unit elasticity is not to confound with that ISO elasticity: In the first case the elasticity at one point is directly one. In the second case the price elasticity of the demand is constant, i.e. for each price equally large.

In exceptional cases the price elasticity of the demand can be positive in addition. This is for example the case, if with rising price an increasing exclusivity of the property is associated (Snob effect, demonstrative consumption) or if from the increase of the price a forthcoming shortage of the property one judges (fear purchases). See in addition also Giffen paradox.

The price elasticity can be used as characteristic number also for the Controlling in the enterprise, in order to seize the stability of the own prices with changes of demand.


Price elasticity, direct price elasticity


Price elasticity, direct price elasticity, the proportional change of the demand quantity after economic goods, if a price adjustment occurs downward or upward with this economic goods around a per cent and is thus a yardstick for the change of the demand on

Fullcoming inelastic demand

One speaks full-coming inelastic demand of, if the value of the price elasticity is equal to zero. It does not occur a reaction of the demand to This particularly shows up with medicines. Despite price increases the same quantity is always bought.

Inelastic demand

One speaks of an inelastic demand, if the value of the price elasticity is smaller than one. A weak reaction of the demand to particularly shows up with vitally necessary economic goods such as flour, water, bread, etc.

Flexible demand

One speaks of a flexible demand, if the value of the price elasticity is larger than one. A strong reaction of the demand to particularly shows up with luxury goods such as car, Kavier, mark clothes, Champagner etc.

Around the price elasticity to determine one needs the following values: The in % (proportional change between old and new sales volume) the price adjustment in % (proportional change between old and new price)

Example on the basis a price reduction: An enterprise changes its price from at present 60 "€ on 50 "€. This has the consequence that the sales volume from at present 3000 pieces rises to 4000 pieces. Proportional change by the increase in sales (4000-3000) /3000 = 33.33% proportional change by the price reduction (50-60) /60 = 16.33% computation of the price elasticity 33,33/16.66 (* -1) = 1.99 the demand is thus flexibly
example on the basis a price increase: A dealer increases the price of a mark Sackos from at present 100 "€ to 105 "€. This entails that the demand from at present 10 pieces on 9 pieces sinks. Proportional change by the decrease in sale (10-9) /10 = 10% proportional change by the price increase (105-100) /100 = 5% computation of the price elasticity 10/5 (* -1) = 2 the demand is thus flexible 

See also

  • Income elasticity
  • Cross price elasticity
  • Amoroso Robinson relation
  • Price effect

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