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Elasticity of demand |
Also found in: Wikipedia, Hutchinson | 0.01 sec. |
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Elasticity of demand The degree of buyers' responsiveness to price changes. Elasticity is measured as the percent change in quantity divided by the percent change in price. A large value (greater than 1) of elasticity indicates sensitivity of demand to price, e.g., luxury goods, where a rise in price causes a decrease in demand. Goods with a small value of elasticity (less than 1) have a demand that is insensitive to price, e.g., food, where a rise in price has little or no effect on the quantity demanded by buyers. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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Looking first at a ppm, equating MR and MC (second-order conditions are ignored) implies the firm sets a price that is a multiple of the MC of its optimal output; more specifically, the firm's optimal price is equal to the MC of its optimal output multiplied by an expression equal to: the absolute value of the price elasticity of demand at its optimal output divided by that absolute value minus 1. Drugstores are selling needed staples, however, so they're less subject to the fickle whims of retail, unlike fashion and gift retailers that have a high elasticity of demand. The 'AA-' rating reflects the economic strength and near monopoly position of the seven bridge system which provides critical transportation links in the San Francisco Bay Area, a mature and relatively stable traffic base, improved legal ratemaking flexibility, and demonstrated low to moderate elasticity of demand. |
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