Elasticity of demand

Definition:

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.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

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Used in the context of general equities. Hierarchy of choices concerning price and volume of bids or offers proposed to a customer (e.g. Menu of offerings to a customer buyer - a) 10m @ 24 1/4; b)... Read More

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