Posted in Operations and Supply Chain Terms, Total Reads: 2258
Definition: Elasticity of Demand
Elasticity of demand indicates the degree to which the demand for a product varies with its price in the market. It is calculated as the percentage change in the quantity demand for a unit percentage change in the price.
Elasticity of Demand=(% change in quantity demand)/(%change in price)
Generally, the demand increases with a drop in prices and the demand decreases with a rise in prices. Hence, the value of elasticity of demand gives a negative value.
Products are considered to be highly elastic if the demand changes by a large amount for a small change in price. Products are considered to be highly inelastic if the demand does not change for a large change in the price.