What is Price elasticity of demand?
How strongly demand reacts to a change in price.
If demand barely changes when price rises, it is inelastic and higher prices raise revenue. If many customers leave, it is elastic and lower prices can raise revenue.
Formula
Price elasticity = % change in quantity demanded ÷ % change in price
Example
A 10% price rise that loses 5% of bookings gives an elasticity of −0.5, usually quoted as 0.5 (inelastic).
Why it matters
It is the basis of pricing and revenue management.
🏨 See it in a hotel game
Test it with room prices: the price guide shows where guests start booking rival hotels instead.
Play free — no download