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elasticity of demand

   Also found in: Financial, Wikipedia 0.03 sec.

elasticity of demand

Measurement of the change in demand in response to a change in price, incomes, or other factor. Price elasticity, for example, is calculated by dividing the percentage change in price by the percentage change in demand.

A good where the price elasticity is greater than 1 is said to be price elastic - any chance in price will result in a relatively larger change in demand. Luxury goods usually fall into this category, for example a rise in the price of holidays will result in a fall in demand.

A good where the price elasticity is less than 1 is said to be price inelastic - any change in price will result in a relatively smaller change in demand. Essential goods usually fall into this category, for example a rise in the price of bread will result in a relatively smaller change in demand, and therefore an increase in revenue.
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Looking first at a ppm, equating MR and MC (second-order conditions are ignored) implies the firm sets a price that is a multiple of the MC of its optimal output; more specifically, the firm's optimal price is equal to the MC of its optimal output multiplied by an expression equal to: the absolute value of the price elasticity of demand at its optimal output divided by that absolute value minus 1.
Product and resource markets: points of symmetry by Weber, David W. / Academic Exchange Quarterly
Drugstores are selling needed staples, however, so they're less subject to the fickle whims of retail, unlike fashion and gift retailers that have a high elasticity of demand.
WALGREENS DRUGSTORES SPREADING IN SOUTHLAND by Daily News (Los Angeles, CA)
The 'AA-' rating reflects the economic strength and near monopoly position of the seven bridge system which provides critical transportation links in the San Francisco Bay Area, a mature and relatively stable traffic base, improved legal ratemaking flexibility, and demonstrated low to moderate elasticity of demand.
Fitch Rates Bay Area Toll Auth $1.16B 2006 Series F Revs 'AA-'; ... by Business Wire
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