Price elasticity of demand measures how demand changes in relation to a change in price.
The price elasticity of demand can be calculated by dividing the percentage change in demand and dividing it by the percentage change in price.
Price elasticity can be used to determine how much a company should increase / decrease prices to maximise profits.
Some products are price inelastic (even when price goes up, demand doesn't fall). These include petrol, alcohol and tobacco and are the main products that are heavily taxed.
Demand for a product can be controlled mainly by a company by changing price (the company could also use promotion and other tactics to gain extra sales). But, there are some factors that change demand which the company cannot control, which include:
