You learn something new at every Nuremberg Toastmasters meeting. Speaking on the 6th August Gernot talk us through the concept of “Price Elasticity of Demand”. Below is a short summary of “Price Elasticity ” written by Gernot.
Price Elasticity – Many companies want to maximize their revenues. Once it comes to the price policy they have to decide whether they should increase or decrease their prices. If a vendor increases the price for a product this vendor will earn more per product but probably sells fewer products. Does this increase or decrease the revenue? This depends on the price elasticity. Price elasticity measures how strong the demand for one product changes (goes up or down) after the price has been changed (decreased or increased). In a situation where the price elasticity is rather high a vendor must decrease his prices to increase the revenues. Although the vendor earns less per unit this is offset by the strong increase in demand. In a situation where the price elasticity is rather low a vendor needs to increase prices to increase the revenue. Due to the low price elasticity the demand will hardly change and the vendor will benefit from the increased revenues per unit.