Principles of Marketing - Philip Kotler

The elasticity of demand for prices

Market figures need to know how sensitive demand is to changes in price. Consider the two demand curves shown in Fig. 62. From Fig. 62a it is clear that the increase in prices from TS1 to U2 leads to a relatively small drop in demand from K1 to K2. And from Fig. 626 it is clear that the same increase in prices leads to a significant drop in demand from K1 to K2. If under the influence of a small change in the price demand is almost unchanged, we say that it is inelastic. If the demand is undergoing significant change, we say that it is elastic.

Inelastic and elastic demand

Fig. 62. A non-elastic and elastic demand

What determines the price elasticity of demand? Demand is likely to be less elastic in the following circumstances: 1) the product has little or no replacement or no competitors, 2) consumers do not immediately notice the higher prices, and 3) buyers slowly changing their buying habits and are in no hurry to look for cheaper goods, 4 ) consumers believe that the price is justified by the increased improvement of the quality of the goods, the natural growth of inflation and so on. n.

If demand can be called elastic, sellers should think about lowering prices. Reduced price will bring a greater volume of total revenue. This approach makes sense as long as there is a disproportionate growth in the costs of production and marketing of goods.