PE = percentage change in demand divided by percentage change in price.
Figure over 1 - elastic demand
Figure below 1 - inelastic demand
A firgure of zero (unity) - this is rare and means the change in price is exactly offest by the change in demand i.e. revenue of the firm will be unchanged.
Price elastic = A rise in price leads to a fall in sales revenue. A fall in price leads to a rise in sales revenue. Profit may increase but this will depend on the costs of the business.
Price inelastic = a increase in price leads to a increase in revenue and a increase in profit (fewer units = lower costs of production.)
A fall in price leads to a fall in revenue and a fall in profit.
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