### 날짜 : 2023-11-30 14:29 ### 주제 : Pricing Strategy #마케팅 #공부 #pricing #economics ---- ## **6.3 Price Elasticity** Price elasticity of demand (PED) measures how sensitive the quantity demanded of a product or service is to changes in its price. It's a critical concept for businesses when setting prices because it helps predict how changes in price will impact sales revenue. Here's a more detailed exploration of price elasticity: ## **Demand Elasticity** Demand elasticity, often referred to as price elasticity of demand, is a fundamental concept in economics and pricing. It measures how sensitive the quantity demanded of a product or service is to changes in its price. Understanding demand elasticity is essential for businesses when setting prices, as it helps predict how changes in price will impact sales revenue. Here are key aspects of demand elasticity: ### **1. Elastic vs. Inelastic Demand**  Photo by: https://www.wallstreetmojo.com/wp-content/uploads/2021/06/Elastic-Demand-Graph.jpg.webp - **Elastic Demand:** When demand is elastic, relatively small changes in price lead to significant changes in the quantity demanded. In other words, consumers are highly responsive to price changes. The elasticity coefficient (Ed) is greater than 1 (|Ed| > 1) for elastic demand. - **Inelastic Demand:** In contrast, inelastic demand means that changes in price have a limited effect on the quantity demanded. Even substantial price changes result in relatively small changes in demand. The elasticity coefficient (Ed) is less than 1 (|Ed| < 1) for inelastic demand. ### **2.1. Factors Affecting Elasticity** Several factors influence the elasticity of demand for a product or service: - **Necessity vs. Luxury:** Necessities tend to have inelastic demand because consumers will continue buying them even if the price increases. Luxuries often have more elastic demand. - **Availability of Substitutes:** The availability of close substitutes affects elasticity. Products with many substitutes typically have more elastic demand because consumers can easily switch to alternatives if prices rise. - **Proportion of Income:** If a product represents a significant portion of a consumer's income, its demand is likely to be more elastic. Small price changes can have a big impact on the consumer's budget. - **Time Horizon:** Demand elasticity can change over time. In the short term, demand for some goods may be inelastic because consumers cannot easily adjust their behavior. In the long term, demand can become more elastic as consumers find alternatives. ### 2.2. Examples in medical industry #### **Elastic Demand:** 1. **Prescription Medications:** Many prescription drugs exhibit elastic demand. When the price of a specific medication increases significantly, patients and healthcare providers may seek alternatives or switch to generic versions or lower-cost treatments. Patients are often sensitive to the cost of prescription medications due to the availability of substitutes. 2. **Elective Cosmetic Surgery:** Procedures like elective cosmetic surgery, such as facelifts or breast augmentations, typically have elastic demand. Patients can postpone or choose not to undergo these procedures if the prices are too high. Price reductions or special offers can attract more patients. 3. **Dental Whitening Services:** Dental procedures for cosmetic purposes, like teeth whitening, often have elastic demand. Patients may decide against the treatment if the price is too high, and they can explore alternative options or home whitening products. #### **Inelastic Demand:** 1. **Life-Saving Medications:** Medications for life-threatening or chronic conditions, such as insulin for diabetes or anti-rejection drugs for transplant patients, generally have inelastic demand. Patients depend on these medications to maintain their health and often have limited alternatives. They are willing to pay higher prices to access these life-saving drugs. 2. **Emergency Medical Services:** Emergency medical services, including ambulance services and emergency room care, often have inelastic demand. Patients in critical situations have little choice but to seek immediate medical attention, regardless of the cost. These services are essential and not easily substituted. 3. **Vaccinations and Preventive Care:** Vaccinations and preventive healthcare services, such as flu shots and routine check-ups, typically have inelastic demand. Patients recognize the importance of these services in maintaining their health and preventing illnesses. Even if there is a cost associated with vaccinations, patients are often willing to pay to protect their well-being. 4. **Medical Necessities:** Certain medical supplies and equipment, like insulin syringes for diabetics or oxygen tanks for patients with respiratory conditions, exhibit inelastic demand. Patients rely on these products for their daily health and well-being, and they are less likely to reduce their consumption in response to price increases. It's important to note that elasticity of demand can vary based on factors such as individual preferences, insurance coverage, and the availability of substitutes. Additionally, healthcare systems and regulations can influence pricing dynamics for medical products and services. ### **3. Implications for Pricing** Understanding demand elasticity is crucial for pricing decisions: - **Elastic Demand:** When demand is elastic, a decrease in price may lead to a proportionally larger increase in quantity demanded, potentially increasing total revenue. Conversely, increasing the price may lead to a proportionally larger decrease in quantity demanded. - **Inelastic Demand:** In situations of inelastic demand, price increases may lead to higher revenue, while price reductions may result in lower revenue. Businesses with inelastic products often have more pricing power. ### **4. Elasticity Coefficient (Ed)** The elasticity coefficient measures the responsiveness of demand to price changes. It is calculated as:  - If |Ed| > 1, demand is elastic. - If |Ed| < 1, demand is inelastic. - If |Ed| = 1, demand is unitary elastic (percentage change in quantity demanded equals the percentage change in price). ### **5. Practical Applications** Demand elasticity has practical applications in various industries: - **Pricing Strategies:** Businesses use elasticity estimates to set prices that maximize revenue. For elastic goods, lower prices may be appropriate to attract more customers. For inelastic goods, higher prices can increase revenue. - **Taxation:** Governments use elasticity to determine the impact of taxes on consumer behavior. Taxes on inelastic goods may generate more revenue, while taxes on elastic goods may lead to reduced consumption. - **Marketing:** Understanding demand elasticity helps marketers assess the potential impact of price changes on consumer behavior and develop effective pricing and promotional strategies. - **Supply Chain Management:** Elasticity insights can guide inventory management and production planning. In summary, demand elasticity is a crucial concept that helps businesses make informed pricing decisions and understand how changes in price can impact demand and revenue. Businesses must consider elasticity alongside other factors, such as production costs and competition, to develop effective pricing strategies. ### 출처(참고문헌) - ### 연결문서 -