A measure used in economics to quantify the responsiveness of the quantity demanded of a good or service to changes in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. If the result is negative, it indicates that the good or service is “price elastic,” meaning that a percentage change in price leads to a larger percentage change in quantity demanded. If the result is positive, it indicates that the good or service is “price inelastic,” meaning that a percentage change in price leads to a smaller percentage change in quantity demanded. If the result is zero, it indicates that the quantity demanded is unaffected by changes in price, making the good or service “perfectly inelastic.” Price elasticity of demand helps businesses understand how sensitive consumers are to changes in price and can influence pricing strategies, revenue projections, and more.
