Price Elasticity of Demand
Higher prices usually shrink the pool of willing buyers, but the crucial variable is how sharply demand changes at each price point.
Raise a product’s price and you do more than earn extra money per sale: you make some buyers disappear. The surprising part is that a price increase can therefore reduce, rather than increase, the money a product brings in.
E1Price filters the buyer pool
Every buyer has a limit to what they are willing to pay. As price rises, it crosses more of those limits, leaving fewer willing buyers; as price falls, it brings more people within reach. The demand curve captures that direction, while price elasticity asks about the size of the response. A small increase may barely affect purchases at one price yet cause a sharp drop at another. Pricing therefore changes two moving parts at once: revenue per sale and the number of sales.
E1Direction is not sensitivity
The rule tells you that willingness to buy generally falls as price rises; it does not tell you how many buyers will leave, where the sharp drop begins, or whether higher revenue per remaining sale offsets the lost volume. Those quantities must be estimated for the particular product and price range.
E1Measure the slope before choosing the price
Test two or more nearby price points and compare both conversion and total revenue. Do not choose the price with the most buyers or the highest margin per sale automatically; use the observed change in demand to locate the stronger trade-off.
Episodes that teach this
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Why We Pay More Than Others? Product Pricing Psychology | Future IQ
· explained at 1:53
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"if the price increases the number of people willing to buy decreases"