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Price elasticity

direct price elasticity

the percentage change in the amount of demand for a good if the price of this good changes by one percent up or down. It is therefore a measure of the reaction of demand to price changes.

The price elasticity of demand is calculated by dividing the percentage change in the quantity of a good demanded by the percentage change in price. The price of a jacket increases e.g. E.g. from 100 € to 105 €, i.e. by 5%, and the demanded amount therefore drops from 10 jackets to 9, i.e. by 10%. The price elasticity of demand is then 2 (10% divided by 5%).

Demand is elastic if the calculated value of the price elasticity is greater than 1; the change in the quantity of goods demanded is then greater than the change in price. A strong reaction on the part of consumers to price changes (great price elasticity of demand) can be observed especially in the case of luxury goods such as champagne or caviar.

The demand is inelastic if the value of the price elasticity is less than 1. The change in the amount of demand is then smaller than the change in price. A weak reaction on the part of consumers to price changes (low price elasticity of demand) is particularly evident in the case of essential goods such as potatoes or bread.

Demand is completely inelastic when the value of price elasticity is zero. The demand is then completely unchanged and does not react to price changes. The same quantity of goods is always bought. Inquirers react z. B. when buying necessary medication in this way.

Duden Wirtschaft from A to Z: Basic knowledge for school and study, work and everyday life. 6th edition. Mannheim: Bibliographisches Institut 2016. Licensed edition Bonn: Federal Agency for Civic Education 2016.