Eftirspurnarverðteygni

Eftirspurnarverðteygni, commonly known as price elasticity of demand, is an economic concept that measures the responsiveness of the quantity demanded of a good or service to a change in its price. In simpler terms, it indicates how much the demand for a product will change when its price goes up or down.

The calculation for price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. A result greater than 1 indicates that demand is elastic, meaning that a small change in price leads to a larger change in the quantity demanded. For example, if the price of a luxury item increases by 10%, and the quantity demanded falls by 20%, the elasticity is -2, indicating elastic demand.

If the result is less than 1, demand is inelastic. This means that a change in price has a relatively small effect on the quantity demanded. For instance, if the price of a necessity like gasoline increases by 10%, and the quantity demanded only falls by 2%, the elasticity is -0.2, indicating inelastic demand.

A result exactly equal to 1 signifies unit elasticity, where the percentage change in quantity demanded is equal to the percentage change in price. If the elasticity is zero, demand is perfectly inelastic, meaning the quantity demanded does not change regardless of price. If demand is infinitely elastic, any price increase will cause demand to drop to zero.

Understanding price elasticity of demand is crucial for businesses when setting prices and for policymakers when considering taxes or subsidies. It helps predict consumer behavior and its impact on sales revenue and market dynamics.