Today, we will learn about a very important topic in pricing – how customers react to price. This is called demand determination.

📌 3.2.1 – What Affects Price Sensitivity?

Price sensitivity means how much customers care about the price of a product.

Some people are very sensitive – if price goes up even a little, they stop buying. Others don’t mind paying more.

Let me give you some examples:

• ✅ If you sell RM1 mineral water, and suddenly raise the price to RM2, many people will stop buying – they are price sensitive.

• ✅ But if you sell branded perfume, even if the price goes up from RM150 to RM180, some customers will still buy – they are less sensitive.

Factors that affect price sensitivity:

• Necessity vs luxury – Food is a need, so people still buy it even if price goes up.

• Availability of substitutes – If there are many choices, customers are more sensitive.

• Customer income – Higher income customers may be less sensitive.

• Brand loyalty – Loyal customers don’t mind paying more.

📌 3.2.2 – What Is Elasticity of Demand?

Elasticity of demand means how much demand changes when the price changes.

Let me make it simple:

• If a small price increase causes a big drop in sales, we call it elastic.

• If the price increases but people still buy the same amount, it is inelastic.

✅ Example:

• Chicken rice price increases from RM5 to RM6. If people stop buying it, the demand is elastic.

• Petrol price increases, but people still buy – that’s inelastic demand, because petrol is a necessity.

📌 3.2.3 – How Do We Estimate Demand?

To set the right price, businesses must guess or estimate how many people will buy at different prices. This is called a demand schedule.

✅ Example:
Let’s say you sell ice cream:

This table helps you decide the best price – not too high, not too low.

You can estimate demand using:

• Past sales data

• Customer surveys

• Market research

✅ In Summary:

• Price sensitivity shows how much customers react to price.

• Elasticity explains how demand changes with price.

• Demand schedule helps you plan the right price and quantity.

When you understand these, you can set a price that gives profit and keeps customers happy.