How does price elasticity affect business strategy?

How does price elasticity affect business strategy?

Price elasticity measures how demand changes with price changes. A business can adjust its pricing strategy based on this to maximize revenue.

Can you give an example of a product with elastic demand?

Sure! Luxury goods often have elastic demand. If prices rise, consumers may buy less or switch to alternatives.

What about inelastic demand? Can you provide an example?

Inelastic demand is seen in essential goods, like medicine. Even if prices increase, consumers will still buy them because they need them.

How can businesses use this information in their pricing strategies?

Businesses can analyze price elasticity to set optimal prices, decide on discounts, and forecast how changes will impact sales.

Are there any risks in relying too much on price elasticity?

Yes, over-reliance can lead to misjudgments. Market conditions, competition, and consumer preferences can change, affecting elasticity.