When the quantity that is demanded of a particular product changes as a result of a change in price, that is price elasticity. Typically this can be seen in luxury items, or items where there are plenty of substitues readily available. I found a great example of this in the June 2011 article about the new Fiat being sold at extremely affordable pricing. McNaughton (2011) talks about how the Fiat is being sold to a wide variety of people, in large part due to how affordable it is. Sales are high as a result of the low price, the assumption being that if the price were to be raised, sales would drop.
I have drawn up a graph based on fictional numbers to illustrate this theory.
McNaughton, D. (2011, Jun 3). Drivers get droptop at bargain; Open-air model brings back memories of original 500c.
Times - Colonist, p E.7. Retrieved on July 25, 2012, from:
http://search.proquest.com.libresources1.sait.ab.ca/canadiannews/docview/871134979/1383B49AF151A305DD7/11?accountid=13652
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