What is price elasticity?

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Price elasticity is an indicator that shows how consumers react to service and product costs. When prices rise, demand usually drops, but how customers react to a price adjustment varies depending on the service or product and the market. The term “price elasticity of demand” pertains to how price changes impact the quantity of a commodity demanded. Price elasticity of supply, on the other hand, pertains to how price changes impact the quantity of a commodity supplied.

Price elasticity of demand

The price elasticity of demand (PED) is a metric that evaluates how much a good or service’s demand changes in reaction to a price change. When it comes to certain goods, an increase in price causes a fall in demand, whereas a decrease in price causes a rise in demand. When demand changes dramatically as a result of a price shift, the product is said to have “elastic demand.” If, on the other hand, demand changes very little, the product is said to be inelastic. Price elasticity of demand is a metric that identifies whether a good is elastic or inelastic in terms of demand.

Price elasticity of supply

Price elasticity of supply (PES) describes how suppliers of a product or service seem to be either more or less eager to produce it as the price of a product or service rises or falls. Elastic goods or services are those that have a direct relationship between price and supply. This indicates that if the cost or price of a product varies, so does the willingness of providers to supply it. Inelastic products, on the other hand, are those that are unaffected by price changes.

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Pieter Borremans
By Pieter Borremans

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