In economics, price elasticity of demand (PED) refers to the rate at which a product or service purchase decisions when compared to other purchases.
In other words, it represents the degree to which a person buys a product or service when compared to the other items they purchase.
It is measured in percentage points and used to determine whether or not products are selling at their suggested price point. If they are, then there is more demand for the product than what is being bought at their suggested price point.
When this does not happen, we say that products are price-elastic because people are buying less of them than what they should be! This happens because people feel that they should pay more for them than they do when looking at the price alone.
Slope of the demand curve
While price elasticity of demand is not equal to the slope of the demand curve, they do go together. When the demand for a product is less than its supply, then it becomes cheaper for people to buy this product than others.
This happens when the price of an item increases by a large amount over a short period of time. People are likely to buy what they want when it is more expensive!
The slope of the demand curve shows how much someone values one item out of every other item they have. The higher the demand for one item, the lower the value of another item must be. This shows how intense the desire is for this specific item.
When there is a shortage of an item, prices can rise as fast as supplies last. This causes people to purchase what they want at a high cost, and keeps sellers in business.
Variables that affect price elasticity of demand
When discussing the price elasticity of demand, we also mention variables such as demand curve shift, income inequality, and prevalence of the product or service. All of these affect how much consumers pay for a product or service.
For example, lower income people tend to spend less money on products and services than more affluent individuals. Therefore, when discussing the price elasticity of demand for a product or service, we must also talk about how much money people have to spend on it.
If people have a low budget for a product or service, then they may have to pay more than someone who does not have enough money to purchase the same thing. This is because they may need to search for alternatives that are cheaper or find manufacturer’s that do not require too much investment from them.
This article talks about how the price elasticity of demand is not equal to the slope of the demand curve. The article also mentions other factors that affect price elasticity of demand.
Understanding the difference between slope and elasticity
When we talk about the price elasticity of demand (a.k. “How much might people buy at this price?”), we talk in terms of slope and elasticity.
As we mentioned earlier, a demand curve has a slope. This means that people are more likely to spend money at a higher price than a lower price.
As we also mentioned earlier, the term elastic refers to whether people are willing and able to buy from a product or service. When we talk about the price elasticity of demand (a.k., “How much people might buy at this price?”), we talk in terms of how much people are buying at today’s price versus what they were buying before that price was raised.
When we discuss theprice elasticity of demand, we are talking in terms of slopes and areas.
Example using algebraic expressions
Another example is when a product has a higher price point than another product that is less expensive. In this case, the demand for the more expensive product is less than the demand for the cheaper product.
This happens because people prefer the more expensive product to the less expensive one. People value how much they pay more than anything else.
When you look at two products that are very similar in price, you would probably choose the one that costs less because you value how little you pay more.
People don’t notice how much they cost when they purchase new things, they just feel like they are buying good “value” things.
Example using graphs
In the previous example, we used a line to illustrate the increase in price at a certain point. A curve can also be used to show the price elasticity of demand.
The slope of the curve shows how much more expensive something is when you buy it. A higher slope shows that something is cheaper than it really is, and a lower slope shows that it is worth more than others say it is.
When using curves to illustrate the demand for items, there are some rules that must be followed. For example, if something costs $10 but people say it costs $20, then the demand for this item is not price elastic enough to show a change in price of $10!
To figure out if an item isprice elastic or not, look at its graphs.
Use prices to influence consumers
While slope is a property of consumer desires, price is a property that affects consumers. For example, if you were to pay more for something than someone who didn’t pay as much for the same item was looking to purchase.
By using the price elasticity of demand (EPD) data we can compare the demand for products with and without a price tag on them. This will help us determine if the higher prices are worth it or not.
To use this data, first go to Statista and find all the countries in the world with over 1 billion people. Then, go to geopile and find cities with over 10,000 residents. Once these two resources are available, you can use them to calculate how many people in each country.
Once you do that, you will see that there is a very high correlation between population and consumption. This means that there are very many people living in these cities who would like to buy but do not have enough money to do so.
Use time to influence consumers
Time is another valuable resource that we can use to influence consumers. If we want to continue to push our products and services, we should consider how long people will take their before and after purchases.
When a person purchases a product that is $10 off today, they are most likely going to make the purchase today because of the time savings. Once they get the product, they can decide if they want to keep the discount or not.
If you want your product or service to gain popularity, you must market slow. You must let people have time to decide if they want it or not.
Know your customers well
As mentioned earlier, knowing your market well is key in developing customer loyalty. You can take steps to do this by regularly meeting with your customers and getting feedback.
You can then support and help them through their buying journey by making products and services they use and enjoy.
Many times when a product or service does not work for someone, it is because the person does not know what they are using it for.
For example, if someone was using your food to treat a chronic health condition, they may not know that it does not taste very good or that it may take very long to consume. These factors might make someone forget about what they are doing which could lead to failure.
It is important to recognize the needs of your community so that people who need what you need can easily find you.
