Economics, 3rd Edition

THE PRICE ELASTICITY OF DEMAND

Businesses cannot directly control demand. They can seek to influence demand (and do) by utilizing a var-

iety of strategies and tactics but ultimately the consumer decides whether to buy a product or not. One 

important way in which consumer behaviour can be influenced is through a firm changing the prices of 

its goods (many firms do have some control over the price they can charge although as we have seen, in 

perfectly competitive markets this is not the case as the firm is a price taker). An understanding of the 

price elasticity of demand is important in anticipating the likely effects of changes in price on demand.