Price elasticity

Price elasticity describes how strongly demand changes when price changes. Products with more elastic demand tend to lose a larger proportion of sales when prices rise, helping sellers assess possible pricing decisions.

Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. The relationship is usually negative; comparisons often discuss its magnitude. It can vary by product, customer group and time period, and estimates should separate the effect of price from promotions, seasonality and changing availability.

For example, if a price reduction of 10% is associated with a 20% increase in quantity demanded, the magnitude is about two using a simple percentage comparison. Revenue may rise, but margin still needs calculation. Dynamic pricing and markdown decisions use this relationship alongside costs and stock constraints.