Price Elasticity
Price elasticity compares the likelihood to purchase a product or service offered based on changes in price. A product or service qualifies as being elastic when a relatively small price change leads to a relatively large change in demand. The opposite holds true for inelastic products and services: a relatively large price change leads to a relatively small change in demand.

Below graphs show the relationship between demand and total revenue. As price decreases in the elastic range, revenue increases as demand goes up quite a lot, but in the inelastic range, revenue decreases because even though price decreases, demand remains at a similar level.

So how can I determine at what price my products or services should be offered?
While analyzing actual sales as a function of price might be the easiest way to determine the price customers are willing to pay for your goods or services, if no detailed historical sales and/or pricing information exists, conjoint analysis can be very useful. Customers will be asked to make trade-offs between concepts that are profiled in terms of a set of attributes, including price, and they will rate their preference for each alternative. Preference and price sensitivities are then inferred from these ratings.

For more information about the use of price elasticity in marketing research, go to http://www.quirks.com/articles/a1990/19901103.aspx?searchID=17641683&sort=5&pg=1