What is the impact of price elasticity on sales?

How does price elasticity affect sales revenue?

Price elasticity measures how sensitive the quantity demanded is to a change in price. If demand is elastic, a price decrease can lead to a significant increase in sales revenue.

Can you give an example of elastic and inelastic demand?

Sure! An example of elastic demand is luxury goods, where a price drop can greatly increase sales. In contrast, inelastic demand is seen in necessities like insulin, where price changes have little effect on sales.

What factors influence price elasticity?

Factors include the availability of substitutes, the necessity of the product, and the proportion of income spent on the good. The more substitutes available, the more elastic the demand.

How can businesses use this information?

Businesses can adjust pricing strategies based on elasticity to maximize revenue. For elastic products, lowering prices can boost sales, while for inelastic products, they can increase prices without losing many customers.