Price/Income Elasticity of Demand
•Degree of necessity of luxury
•Proportion of income required by the item
•Time/period considered
•Permanent or temporary price changes
•Price points.
The price elasticity of demand is a unit-less number calculated by dividing the proportionate change in quantity demanded by the proportionate change in price. So how can this number be used to decide whether to increase or decrease price while still increasing a company’s revenue? It all depends on the demand curve. Once the price elasticity of demand is calculated, it can be placed on the demand curve and compared to different ranges of values to determine what would happen with an increase or decrease in price. For example, if elasticity is >1 (infinite elasticity), the demand curve would be nearly horizontal and small changes in price would have a large impact on quantity demanded. Should the elasticity be
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