FinTech Glossary

What Is Price Elasticity?

Price elasticity measures how sensitive the demand for a product or service is to changes in its price, indicating whether customers are likely to buy more or less when prices increase or decrease.

How Price Elasticity Is Interpreted

Price elasticity helps businesses understand customer behaviour in response to pricing changes.

1. High elasticity means demand changes significantly with price
2. Low elasticity means demand remains relatively stable
3. Elasticity can be positive or negative depending on the product
4. Results vary across industries, markets, and customer segments

This interpretation guides pricing and revenue decisions.

Why Price Elasticity Matters for Businesses

Understanding price elasticity is essential for setting effective pricing strategies. In competitive markets like India, it helps businesses predict how discounts, price hikes, or promotional offers will affect sales volumes and revenue. It also supports decisions around product positioning, market entry, and long-term profitability by balancing customer demand with margin objectives.