1. What is Price Elasticity of Demand?

Price elasticity of demand measures how responsive the quantity demanded of a good is to a change in its price. It quantifies the percentage change in quantity demanded resulting from a one percent change in price.

2. How Does the Calculator Work?

The calculator uses the price elasticity formula:

Where:

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

Explanation: The formula calculates the ratio of the percentage change in quantity demanded to the percentage change in price, indicating how sensitive consumers are to price changes.

3. Importance of Price Elasticity Calculation

Details: Understanding price elasticity helps businesses set optimal pricing strategies, predict revenue changes, and understand market dynamics. It's crucial for economic analysis and business decision-making.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What does different elasticity values mean?
A: |PE| > 1 = elastic demand, |PE| < 1 = inelastic demand, |PE| = 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, price elasticity is typically negative due to the inverse relationship between price and quantity demanded (law of demand).

Q5: How is elasticity used in business?
A: For pricing strategies, revenue forecasting, tax incidence analysis, and understanding consumer behavior.