Unit Economics

Price Elasticity

Learn whether you can raise prices without losing the business — the single number behind pricing power.

  • Intermediate
  • 6 min total
  • 11 chapters

What decision this helps you make: Whether to raise or cut prices, and how much volume a price change will really cost or win.

What this topic is

Price elasticity measures how much the quantity you sell changes when you change the price. If sales barely move (inelastic), you have pricing power; if they move a lot (elastic), a price rise can cost you dearly.

Why it matters

It answers the most important pricing question there is: can I raise prices without losing so many customers that I'm worse off? For inelastic products, a price rise raises revenue; for elastic ones, it can sink it.

Who should learn it

Anyone who sets prices and wonders how much room they have — whether a small increase will pass unnoticed or send customers running.

What you will understand

  • Measure how sensitive your sales are to price
  • Tell an elastic product from an inelastic one
  • Predict what a price change does to revenue
  • Find and build pricing power

Prerequisites

Common misconception

"Raising prices always loses customers and lowering them always wins." It depends entirely on elasticity: for inelastic goods, a higher price barely dents sales and lifts revenue; for elastic goods, a small rise can drive customers away in droves.