1. What Is Price Elasticity of Demand?

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. It indicates how much the quantity demanded of a good changes when its price changes, expressed as the ratio of percentage change in quantity demanded to percentage change in price.

2. How Does the Calculator Work?

The calculator uses the price elasticity formula:

Where:

• \( E_p \) — Price elasticity of demand (dimensionless)
• \( \%\Delta Q \) — Percentage change in quantity demanded (%)
• \( \%\Delta P \) — Percentage change in price (%)

Explanation: The formula calculates how sensitive consumers are to price changes. A higher absolute value indicates greater sensitivity.

3. Importance of Price Elasticity Calculation

Details: Understanding price elasticity helps businesses set optimal prices, predict revenue changes, and develop effective pricing strategies. It's crucial for market analysis and economic planning.

4. Using the Calculator

Tips: Enter percentage change in quantity and percentage change in price as decimal numbers. Both values are required, and percentage change in price cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What do different elasticity values mean?
A: |E_p| > 1 = elastic demand, |E_p| < 1 = inelastic demand, |E_p| = 1 = unit elastic demand.

Q2: How is percentage change calculated?
A: %Δ = [(New Value - Old Value) / Old Value] × 100%

Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time period, and proportion of income spent on the good.

Q4: Can elasticity be negative?
A: Yes, due to the inverse relationship between price and quantity demanded, though we often use absolute value for interpretation.

Q5: How is this used in business decisions?
A: Companies use elasticity to determine if price changes will increase or decrease total revenue and to understand market competition.