• Print Page
• eMail Page

Search website for :

Home→The Westburn Dictionary of Marketing→D→demand, price elasticity of

demand, price elasticity of

Definition:
Elasticity of demand is a common device describing the shape of a demand function. It measures the sensitivity of sales to changes in a particular causal factor. More precisely, elasticity is the ratio of relative change in a dependent variable to the relative change in an independent variable. Demand is said to be elastic when the relative change in the independent factor to the relative change in quantity is greater than 1 and inelastic when it is less than 1. Although originally the concept of elasticity referred only to price:sales ratios, it can be generalized to apply to each demand determinant, e.g. consumer income, advertising expenditures etc. The main interest in price elasticity arises from the fact that it provides information about the effects of price changes on revenues. Depending on price elasticity, a given change in price will result in an increase in total revenue, a decrease, or no change. Total revenue increases with price reductions when demand is elastic, decreases when demand is inelastic, and is unaffected when unitary elasticity prevails.

Cross-References:

Links:

Figures:

© Westburn Publishers Ltd 2002, The Westburn Dictionary of Marketing edited by Michael J Baker, ISBN 978-0-946433-01-8. www.themarketingdictionary.com. Entry: [Michael J. Baker], [1998].