price elasticity of demand

Price elasticity of demand is a measure of the relationship between a relative change in demand for a good or service and a relative change in price for the same good or service.

The elasticity η is calculated by relating the demanded quantity x to the price p:

Formel zur Preiselastizitaet

Price elasticity of demand can thus be used to determine whether sales increase (η > -1), decrease (η < -1), or remain constant (η = 1) when prices change. For example, if the price is increased by one percent and the price elasticity η is -2, this means that the quantity sold will decrease by 2 percent as a result of the price increase. The price elasticity is therefore a useful indicator to determine whether a market is more price-sensitive (η < -1) or price-insensitive (η = 1 or > -1).

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