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Products and services can be: Perfectly elastic where any very small change in price results in a very large change in the quantity demanded. Beef, as discussed above, is an example of a product that is relatively elastic.
Unit elastic where any change in price is matched by an equal change in quantity where the number is equal to 1. Relatively inelastic where large changes in price cause small changes in demand the number is less than 1. Perfectly inelastic where the quantity demanded does not change when the price changes. Products in this category are things consumers absolutely need and there are no other options from which to obtain them.
How do companies use it? This is one of the key metrics for marketing managers, says Avery. But it can go the other way.
This is not what companies tend to do in practice. Rather, they send out questionnaires, run focus groups, or perform small-scale experiments in certain markets, to give them a sense of what would happen if they changed their price. But they are closely related. Many managers assume they understand the full picture based on their experience pricing their products in the marketplace, that they know how consumers will respond to almost any price change, explains Avery.
But rarely have companies tested extreme price changes. More extreme changes in price may elicit significantly different consumer responses.
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