Elasticity of Price Expectations (epe)
We know that the demand for a good is influenced by expected future price. Factors like political changes, economic policy changes and the general trend of past changes in price influence consumers, price expectations. The elasticity of price expectations is the ratio of the relative- change in expected future prices (Ep) to the relative change in current prices (Cp)
Epe = (ΔEp/ΔCp). Cp/Ep
The coefficient Epe gives the measure of expected future change in future price as a result of one per cent change in present price.
(a) If Epe > 1, the future change in price will be greater than the present change in price and vice versa.
(b) If Epe = 1, a future change in price will be equal to current change in price.
(c) If Epe = 0, there will be no change in future price.
Managers can formulate future pricing policy of the firm with the help of elasticity of price expectation A coefficient greater than one indicates that sellers can sell their goods at a higher price in future.
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