Price Elasticity
Also called: price elasticity of demand
What is Price Elasticity?
Price elasticity of demand measures how much the quantity sold changes when the price changes. Elastic items lose volume quickly when prices rise; inelastic ones barely move, which is where price increases are safest.
Why Price Elasticity matters
Elasticity decides where to raise prices. Signature dishes, staples and convenience purchases usually absorb a rise; commodity items that customers can price-compare do not.
Price Elasticity formula
Elasticity = % change in quantity sold ÷ % change in price
A result beyond −1 means demand is elastic and revenue falls when prices rise.
How Price Elasticity works in practice
You rarely need a formal figure. Raise the price of one item, watch volume for a few weeks against a comparable item you left alone, and let the result guide the next change.
Worked example
A 10% price rise that costs 4% of volume is inelastic, so revenue and margin both improve.
Frequently asked questions
Popular items with no close comparison elsewhere, and low-cost add-ons, tend to be the least sensitive.