8.1.1—Elasticity

Price elasticity of demand measures the percentage change in quantity demanded divided by the percentage change in price. Income and promotional elasticity use the same logic with a different driver.

Elasticity helps predict how revenue, demand or response may change, but the estimate depends on time period, segment, substitutes and data quality.

If price rises 10% and quantity demanded falls 20%, PED is −2: demand is elastic in that context, so price may reduce total revenue.

Elasticity is not constant across every price or customer group, and correlation in a dataset does not prove the driver caused the change.