what is price elasticity of demand 
price elasticity of demand is a measurement of the change in the demand for a product in relation to a change in its price elastic demand is when the change in demand is large when there is a change in price inelastic demand is when the change in demand is small when there is a change in price theresa chiechi investopediaunderstanding price elasticity of demandeconomists have found that the prices of some goods are very inelastic that is a reduction in price does not increase demand much and an increase in price does not hurt demand either for example gasoline has little price elasticity of demand drivers will continue to buy as much as they have to as will airlines the trucking industry and nearly every other buyer other goods are much more elastic so price changes for these goods cause substantial changes in their demand or their supply not surprisingly this concept is of great interest to marketing professionals it could even be said that their purpose is to create inelastic demand for the products that they market they achieve that by identifying a meaningful difference in their products from any others that are available if the quantity demanded of a product changes greatly in response to changes in its price it is elastic that is the demand point for the product is stretched far from its prior point if the quantity purchased shows a small change after a change in its price it is inelastic the quantity didn t stretch much from its prior point price elasticity of demand expressed mathematically is as follows factors that affect price elasticity of demandthe more easily a shopper can substitute one product for another the more the price will fall for example in a world in which people like coffee and tea equally if the price of coffee goes up people will have no problem switching to tea and the demand for coffee will fall this is because coffee and tea are considered good substitutes for each other the more discretionary a purchase is the more its quantity of demand will fall in response to price increases that is the product demand has greater elasticity say you are considering buying a new washing machine but the current one still works it s just old and outdated if the price of a new washing machine goes up you re likely to forgo that immediate purchase and wait until prices go down or the current machine breaks down the less discretionary a product is the less its quantity demanded will fall inelastic examples include luxury items that people buy for their brand names addictive products are quite inelastic as are required add on products such as inkjet printer cartridges one thing all these products have in common is that they lack good substitutes if you really want an apple ipad then a kindle fire won t do addicts are not dissuaded by higher prices and only hp ink will work in hp printers unless you disable hp cartridge protection the length of time that the price change lasts also matters demand response to price fluctuations is different for a one day sale than for a price change that lasts for a season or a year clarity of time sensitivity is vital to understanding the price elasticity of demand and for comparing it with different products consumers may accept a seasonal price fluctuation rather than change their habits types of price elasticity of demandprice elasticity of demand can be categorized according to the number calculated by dividing the percentage change in quantity demanded by the percentage change in price these categories include the following example of price elasticity of demandas a rule of thumb if the quantity of a product demanded or purchased changes more than the price changes then the product is considered to be elastic for example the price goes up by 5 but the demand falls by 10 if the change in quantity purchased is the same as the price change say 10 10 1 then the product is said to have unit or unitary price elasticity finally if the quantity purchased changes less than the price say 5 demanded for a 10 change in price then the product is deemed inelastic to calculate the elasticity of demand consider this example suppose that the price of apples falls by 6 from 1 99 a bushel to 1 87 a bushel in response grocery shoppers increase their apple purchases by 20 the elasticity of apples is thus 0 20 0 06 3 33 the demand for apples is quite elastic 