Definition
Price elasticity measures how demand changes when prices change. High elasticity: demand increases significantly with price cuts. Low elasticity: demand barely changes with price cuts.
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Price elasticity measures whether demand changes significantly or minimally in response to price changes. Markets with high elasticity show demand declining substantially with price increases, while markets with low elasticity show demand remaining relatively stable regardless of prices. Luxury homes typically show higher elasticity than starter homes. Understanding elasticity helps predict market response to price changes and indicates whether price reductions will significantly increase demand or have minimal impact.
Pro Tip
In elastic markets, price reductions attract significantly more buyers. In inelastic markets, price cuts have minimal demand impact.
Example
A market with high price elasticity may see demand increase 30% with a 10% price reduction, while low elasticity market might see only 5% demand increase from same reduction.