![]() They determine that this price decrease should result in the same increase in sales, which would be about 1,092 pens per year, which is 9.22% more than 1,000. They decide to sell the pens at $1.28 apiece, which is a 9.22% decrease in price. To sell more pens and still make a profit of at least $1,410 per year, the owner needs to determine the unit elastic demand. The owner believes the store could sell more pens if the price was lower. It sells 1,000 of these pens per month, making a profit of $1,410. The unit elastic theory assumes that there's another similar good on the market at a competitive price.Įxample: An office supply store sells a specific type of pen for $1.41. With unit elasticity, the percentage change in the demand is the same as the price's percentage change, meaning there shouldn't be a change in revenue. When the price of a good changes, the demand for that good should also change. Related: What Is Inelastic Demand? How does unit elasticity work? ![]() This insight also helps to determine what new products customers might like, whether to expand into a new region or country or where to reduce specific costs. By learning how to gather and analyze data properly, companies can improve decision-making skills that are much needed for gauging the economic market. Organizations invest a lot of time, energy and money to understand customer behavior, and unit elasticity helps identify what business owners need to know about the market and how potential consumers settle on purchasing choices.Īnalyzing data on unit elasticity allows companies to turn it into information that can help determine the best way to set prices based on needs and demand. Unit elasticity helps with making informed decisions about a company's customer base and the costs for goods and services. ![]() In this article, we explain how unit elastic works and define the other types of price elasticity of demand. One of the most common measures of price elasticity is unit elastic, which is an economic theory that the percentage change of the price of a good and the percentage change of the demand of the good is the same. These measures help with planning prices, ordering products to meet the demand and calculating and planning for profits and losses. Businesses rely on price elasticity to gauge supply and demand in the ever-changing economic market. ![]()
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