Consumer needs are very diverse, so are capabilities or their purchasing power for goods and services. Therefore, in determining the selling price, manufacturers must consider consumers react to rising or falling prices. For example when manufacturers lower computer prices, market demand for computers will go up. This shows that market demand is very sensitive to price changes. Thus, manufacturers can determine how large an increase or decrease prices in order to achieve maximum results.
Elasticity of demand
The elasticity of demand shows a comparison between the relative change in the amount of goods and services purchased with relative changes in price. Elasticity of demand can explain the sensitivity of demand to price changes of a goods item.
Said to be elastic if the coefficient of demand elasticity of demand is greater than one. This situation occurs when the percentage change in quantity demanded is greater than the percentage change in price.
Market demand is said to be inelastic when the coefficient of elasticity of demand is smaller than one. This situation occurs when the percentage change in quantity demanded is smaller than the percentage change in price.
Unitary elastic demand
Request an item is said to have a unit or unitary elasticity when the percentage change in quantity demanded equal to the percentage change in price.
Perfectly elastic demand
Request a product is perfectly elastic if price changes led to little change in countless requests.
Perfectly inelastic demand
Perfectly inelastic demand means that no matter what the price of an item, people will still buy it takes the same amount. For buyers, prices will not affect the quantity demanded.
- demand can be said to be inelastic when
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