PRICE ELASTICITY Definition

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PRICE ELASTICITY is the degree to which customers respond to price changes (calculation: % change in quantity divided by % change in price). A value greater than 1 = customers exhibit a good sensitivity to price. A value less than 1 = customers are insensitive to price. Price Elasticity is if a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes). A product is inelastic if a large change in price is accompanied by a small amount of change in demand.

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DISCRETIONARY COST can be increased or decreased at the discretion of the decision maker (e.g., advertising and business travel).

STOCK RESERVE (SR) or buffer stock is a stock quantity which is based on the normal average expected consumption during the lead-time to replenish depleted stock. See also SAFETY STOCK.

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