5.1 The Price Elasticity of Demand

MyEconLab Concept Video

Starbucks knows that if it raises the price of a latte and everything else remains the same, the quantity of lattes that it sells—the quantity demanded—will decrease. But by how much? To answer this question, Starbucks needs to know how responsive the quantity of latte demanded is to a change in its price. Elasticity provides this information.

The price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buyers’ plans remain the same.

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