Home
Back
Price Elasticity Of Demand Formula:
| From: | To: |
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, holding all other factors constant.
The calculator uses the Price Elasticity of Demand formula:
Where:
Explanation: The formula calculates the ratio of percentage change in quantity demanded to percentage change in price, providing insight into consumer sensitivity to price changes.
Details: Understanding price elasticity helps businesses set optimal pricing strategies, predict revenue changes, and understand market dynamics. It's crucial for pricing decisions and market analysis.
Tips: Enter percentage change in quantity demanded and percentage change in price as decimal numbers (e.g., 10% as 10, -5% as -5). The calculator will compute the elasticity coefficient.
Q1: What do different elasticity values mean?
A: E_d > 1 = elastic demand, E_d < 1 = inelastic demand, E_d = 1 = unit elastic, E_d = 0 = perfectly inelastic, E_d = ∞ = perfectly elastic.
Q2: How is percentage change calculated?
A: %Δ = [(New Value - Old Value) / Old Value] × 100%. Use this formula to calculate percentage changes before using the calculator.
Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time horizon, proportion of income spent, and brand loyalty.
Q4: Why is elasticity important for businesses?
A: Helps determine optimal pricing, predict revenue changes from price adjustments, and understand competitive positioning.
Q5: Can elasticity be negative?
A: While the calculation can yield negative values, economists typically use absolute values since the relationship between price and quantity is usually inverse.