A Detailed Introduction to Price Elasticity — With an Example

A Detailed Introduction to Price Elasticity — With an Example

In today’s article, I will be going over a significant topic that I have come across repeatedly during my time as an internee and that topic is Price Elasticity.

As a data science intern, I have come to the realization that the amount of value you provide is directly proportional to the price tag you get.The number of skills you possess only matters if those skills can translate to added value to your customer in the form of increased sales or decreases costs. Simple.

The more value you provide, the more valuable you are as a Data Scientist.In today’s article, I will be going over a significant topic that I have come across repeatedly during my time as an internee and that topic is Price Elasticity.

What is “Price Elasticity”?

Price Elasticity tells us how sensitive sales of a particular product are to a unit change in its price.It is nothing more than** the ratio of the percentage change in sales to the percentage change in price. for example:Let’s say, On a daily basis, A particular store sells 20 units of handbags.The store has set a price tag of let’s to say $200 on the bag and they are making a profit on it.One day, the store manager decides to increase the price of the bag to $220 which brings the sales down to 15.**The percentage change in Price is:

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And the percentage change in Sales is:

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So if I were to calculate the Price Elasticity for the bag, I would take the ratio of change in sales to change in price. Which turns out to be:

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So what does this 2.5 tell us? To put it in simple terms, a unit change in price will have a 2.5 times effect on the volume of sales. This value is also known as the** Elasticity coefficient which is just a measure of how sensitive sales are to a unit change in price.**

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