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Definition: Price Sensitive Market
A price sensitive market is one where the demand for a good moves up and down in variation with the prices going up or down. In other words, the price of the product affects the general consumer buying pattern.
Price sensitivity in economics is defined by price elasticity of demand. The price elasticity of demand is defined as the percentage change in quantity demanded to the percentage change in its price. Items which are commoditized will usually exhibit higher price elasticity, i.e. a small change in price will lead to a large change in the quantity demanded. Items which are inelastic, however, are defined to be those where a large change in price leads to a small change in the quantity demanded. In general, the price sensitivity of customers are a function of:
o Purchasing power: People with fixed or low levels of income will usually exhibit higher price sensitivity
o Nature of the product: If the product is a commodity (i.e., is easily available and not much differentiated), it will usually exhibit higher price sensitivity.