Price Sensitivity
Overview
Often, we are not interested in the price function over the entire range of values, and in practice, this is not knowable anyway. Usually,
we can only estimate the expected demand for changes in the price which are not too large, and in many cases this is what we are primarily interested
in anyway. This can be stated as estimating the price sensitivity, i.e. understanding how much the demand will change for some specified change
in the price. This is called the price elasticity and can be written as
{% \Delta q / \Delta p %}
or using calculus
{% d q / d p %}
Often this is restated to percentage terms, that is
{% d q \times p/ d p \times q %}
Once we have the elasticity, we can estimate the change in demand due to a change in prices as
{% \Delta q \approx (d q / d p) \times \Delta q %}
Measuring Price Sensitivity
