Course 201: Understanding a Business
Price Elasticity
In this course
1 Introduction
2 Barriers to Entry
3 Price Elasticity
4 Substitutes
5 Capital Intensity
6 Market Penetration
7 Regulation

Sounds complicated, but price elasticity is just a ratio of how much the quantity of goods sold changes when prices change. Say a company raises prices. If the price elasticity is high, that company loses a lot of business. Fast-food restaurants and manufacturers of economy-size cars are good examples of firms with high price elasticity. If the price elasticity is low, as it is with cigarettes, a company can hike prices and not lose a lot of business. Starbucks charges a dime or quarter more than most other shops and raises prices in line with shifts in coffee prices, which suggest the company enjoys some elbow room when it comes to pricing.

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