What is promotional elasticity in economics?

Economics - What is an elasticity and what does it measure?

• What importance do you feel it is for firms to understand the elasticity of their products they are selling? How does knowing the elasticity of their products help a firm as they price and promote their products?

• Answer:

  Elasticity is the degree to which demand for a product is related to its price. Toilet paper is highly elastic...if one brand raises its price even minimally, there is a good chance that many of its customers will just migrate to another brand. Gasoline is in the middle. If prices go up, people may try to drive a little less, but its hard to change your entire routine of commuting and running errands every time the price fluctuates. Insulin or prescription medications are often used as examples of highly inelastic products. If a drug is keeping you alive, you will generally spend however much it costs to get your daily dose until you are broke. Making it cheaper won't make you buy more, and making it more expensive won't make you cut down (up to a limit). Generally, firms try to reduce the elasticity of their products. This is what marketing and branding accomplishes in creating customer loyalty. It convinces people to continue buying and not to switch to a cheaper brand if the price increases.