elasticity

Also known as: Self-price elasticity, elasticity of demand, elasticity of demand

The question of elasticity is about how consumers react to price changes in the market. The more the demand fluctuates due to price changes, the more "elastic" it is.

Definition / explanation

The market itself regulates the price of goods as long as there is no external intervention. The price development is regulated by the relationship between supply and demand. In principle, “little supply” applies and “a lot of demand” results in “high price”.

In the reality of the market, a high, rising price leads to a decrease in demand. The simple explanatory model for price development is therefore not complete. This fact is captured by the term elasticity.

In addition to the reaction of consumers, elasticity also takes various influencing factors into account. The price increase is not the only decisive factor for a decline in demand in the context of this analysis.

It also depends on how valuable and indispensable a particular good is. If it is so important for consumers that they cannot do without it even if the price is higher, the price increase will hardly have a negative effect on demand.

Price elasticity

Forms elasticity

The following forms of elasticity exist:

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