elasticity of demand



The degree to which demand for a good or service varies with its price. Normally, sales increase with drop in prices and decrease with rise in prices. As a general rule, appliances, cars, confectionary and other non-essentials show elasticity of demand whereas most necessities (food, medicine, basic clothing) show inelasticity of demand (do not sell significantly more or less with changes in price).

Also called price demand elasticity.

See also cross-elasticity of demand.

Use this term in a sentence

  • The price of gas today is based on the elasticity of demand, especially in the summertime when people like to travel.

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  • I noticed the item demand fluctuated with price and it made me come to know how elasticity of demand worked.

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  • Knowing the elasticity of demand for your product and being able to predict it can help increase your sales by a lot.

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