**2.4 Price elasticity of demand**

As an economic principle, the price of a good and the demand for that good are inversely related. That is, the higher the price of a commodity, the less demand there is for that commodity, and the lower the price of a good, the greater the demand for it. Price elasticity of demand shows that a one percent change in a good price causes a few percent changes in the demand. For example, if the price of a car rises by one percent, the demand for it will fall by a few percent, and vice versa, if the price of a vehicle falls by one percent, the demand will increase by a few percent.

Three things can happen when we calculate the price elasticity for a commodity:


If there is an inverse relationship between price and demand, demand elasticity will always be negative because the percentage change in one face or denominator is a negative fraction. Therefore, after calculating the price elasticity of demand, if the result, regardless of the negative sign of the number, becomes more than one, the

**Figure 4.** *Types of elasticity.*

**Figure 5.** *Marginal modes in demand elasticity.*

commodity with elasticity is less than one, the good without elasticity, and if it is equal to one, the good has a single elasticity.

Although the price elasticity of a commodity can be determined only by collecting price information and calculating, some factors affect this ratio.

#### **2.5 Factors affecting the price elasticity of demand**

Alternative goods: The more alternative goods there are, the higher the price elasticity of that product. That is, when the price changes, the demand for that product changes more drastically. Also, price changes in a product cause a shift in the demand for alternative goods. In the healthcare sector, there are usually few alternatives to a health or medical intervention.

Complementary goods: When a product has a supplement, a change in the price of a complementary product causes a change in the demand for another product. Maternal and child care can be mentioned as complementary goods in the field of health (**Figure 4**).

Commodity prices: In general, if the price of a commodity is very low, the amount of demand does not react to price changes. But high-priced products are attractive. On the other hand, different results are obtained depending on the price at which the demand elasticity is calculated. As mentioned initially, the price of a product has an inverse relationship with the amount of demand. When the price is precisely in the middle of the demand curve of a commodity, the commodity has a single elasticity. Also, if the price is less than the midpoint, the product in that range

### *Demand for Health and Healthcare DOI: http://dx.doi.org/10.5772/intechopen.98915*

is unattractive. If the price is above the midpoint, the product will be pulled. You can see this in the chart below.

**Marginal modes in demand elasticity**: There are also two cases in which the product is completely elastic or completely non-elastic. If the good is fully elastic, the demand for that good will be zero if there is a slight change in the price of the good. Perhaps this is the case for a salesperson in a highly competitive market. If the good is completely inelastic, demand is a fixed figure, regardless of the price range. You can see these modes in **Figure 5**.
