8.1.1 Price Elasticity of Demand (PED)
Strategic Pricing Through Demand Sensitivity Analysis
AO1: The Formula
Elastic (|PED| > 1)
Price sensitive. Lower price → Revenue ↑
Example: Luxury Chocolate
Unitary (|PED| = 1)
Proportional change. Revenue constant
Example: Mid-range goods
Inelastic (|PED| < 1)
Price insensitive. Raise price → Revenue ↑
Example: Petrol, Salt
War Room 1: The Revenue Calculator
Product: Premium Coffee
Current Price
$3.00
Current Sales
100 units
PED Coefficient
-2
(Elastic: Price Sensitive)
Strategic Outcome
$300.00
$300.00
AO3: Chain of Consequence
Adjust the price slider to see the strategic chain of events unfold...
✓ STRATEGIC SUCCESS
No price change = No revenue impact.
War Room 2: The Taxman's Dilemma
Scenario: The government wants to impose a 20% tax to maximize tax revenue. Which product should they target?
War Room 3: Elasticity Visualization Engine
Demand Curve
Interpretation:
Gentle slope = Price changes significantly affect quantity
Strategic Implications
Elastic Demand Strategy
- • Pricing: Lower prices to capture market share
- • Products: Luxuries, goods with substitutes, discretionary spending
- • Example: Budget airlines, generic brands, restaurant meals
- • Risk: Price wars, margin erosion
The Executive Decision:
Your product faces fierce competition. Compete on value, not just price. Differentiate or die.
🎯 The Boardroom Truth
PED isn't just a number — it's the difference between strategic triumph and financial disaster.
Elastic goods: Compete on value. Price wars destroy profits.
Inelastic goods: Protect pricing power. It's your competitive moat.
"The invisible hand of the market is guided by the iron law of elasticity." — Every successful pricing strategist
Sign In to Keep Going
You've reached the end of the free preview. Sign in — and upgrade to Plus or Pro — to keep going with Business0960.
Full Access
Unlock all 180 lessons