How Can Businesses Use Price Elasticity of Demand to Set Competitive Prices?

Businesses can use price elasticity of demand, or PED, to set prices that are competitive:

What is PED?:
- PED tells us how much the amount people want to buy changes when prices go up or down.
- If PED is greater than 1, we say demand is elastic. This means people are sensitive to price changes.
- If PED is less than 1, we say demand is inelastic. Here, people are not very sensitive to price changes.
Pricing Strategies:
- For elastic products: If prices go down, sales can go up a lot. For example, if you lower the price by 1%, the number of items sold might increase by more than 1%.
- For inelastic products: If prices go up, businesses can still make more money. Customers won’t change their buying habits much with higher prices.
Market Analysis:
- By understanding what competitors are charging and how their customers react to price changes, businesses can adjust their own prices. This helps them make the most profits possible.

Businesses can use price elasticity of demand, or PED, to set prices that are competitive:

What is PED?:
- PED tells us how much the amount people want to buy changes when prices go up or down.
- If PED is greater than 1, we say demand is elastic. This means people are sensitive to price changes.
- If PED is less than 1, we say demand is inelastic. Here, people are not very sensitive to price changes.
Pricing Strategies:
- For elastic products: If prices go down, sales can go up a lot. For example, if you lower the price by 1%, the number of items sold might increase by more than 1%.
- For inelastic products: If prices go up, businesses can still make more money. Customers won’t change their buying habits much with higher prices.
Market Analysis:
- By understanding what competitors are charging and how their customers react to price changes, businesses can adjust their own prices. This helps them make the most profits possible.

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