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Elasticity of demand can be quantified and be illustrated in a formula:

Elasticity of demand

The more sensitive customers are to price, the larger in the price elasticity of demand. In other words, a larger price elasticity of demand indicates a product whose demand is more elastic. In the short term demand is usually more inelastic because it takes time to find alternatives. The price elasticity of demand will be used to calculate selling price that maximizes the profits of the company.

+ Demand is elastic if a change in price leads to a bigger % change in demand, the price elasticity of demand will therefore be greater than 1.

The following characteristics of goods which are elastic tend to have

They are luxury goods

They are expensive and a big percentage of income .For example, sports cars and holidays

Goods with many substitutes and a very competitive market. For example if Simsbury’s put up the price of its bread there are many alternatives, so people would be very sensitive to the price

They are bought frequently

+ Demand is inelastic if a change in price leads to a smaller % change in demand; the price elasticity of demand will therefore be less than 1.

Goods which are inelastic tend to have some or all of the following features:

They have few or no close substitutes, for example: petrol, cigarettes.

They are necessities

They are addictive

They cost a small percentage of income or are bought infrequently

Demand is unitary elastic if a change in price have no effect to a change in demand; the price elasticity of demand will equal 1.( Tricia Ellis-Christensen and O. Wallace, 2010).

There are many factor influencing the price elasticity of demand :

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