Expressed by the price elasticity coefficient (Ɛ), the elasticity of demand is the ratio of the relative change in demand (Δ.q/q) and the relative change in price (Δ. p/p).
It is calculated using the following formula: E = Δ.q/q / Δ. p/p.
It can also be calculated using the formula: Δ demand (in %)/ Δ price (in %).
In practice, this parameter is used by marketers to know precisely how consumers react when prices change.
Depending on the case, the elasticity of demand can be :
- positive: Ɛ > 0: demand increases when the price increases. This case is quite rare
- null: Ɛ = 0: demand remains stable regardless of price,
- negative: Ɛ < 0: demand falls when price rises,
- rigid or inelastic: Ɛ < 1: price has little impact on sales volume. This is generally the case for products that cannot be substituted or that are essential to daily life: salt, batteries, fuel, food…