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Demand Elasticity

Part 1. Marketing Strategy

  1. Ashutosh Prasad

Published Online: 15 DEC 2010

DOI: 10.1002/9781444316568.wiem01019

Wiley International Encyclopedia of Marketing

Wiley International Encyclopedia of Marketing

How to Cite

Prasad, A. 2010. Demand Elasticity. Wiley International Encyclopedia of Marketing. 1.

Author Information

  1. The University of Texas at Dallas, Richardson, TX, USA

Publication History

  1. Published Online: 15 DEC 2010

Abstract

The price elasticity of demand is a well-established concept with many implications for pricing strategy. This concept together with the interrelated concepts of cross-price elasticity and income elasticity of demand is covered. First, the price elasticity is defined and several illustrative examples of the same are provided. This is followed by a discussion on the economic theory relating elasticity and optimal pricing in monopoly and competitive markets. Recent empirical findings regarding the determinants of pricing are mentioned. Next, the topic of cross-price elasticity of demand is introduced and its application to market structure analysis is presented. The article concludes by relating income elasticity to the remaining elasticities.

Keywords:

  • elasticity;
  • pricing strategy;
  • inverse elasticity rule;
  • cross-elasticity;
  • market structure;
  • income elasticity