1. What is Price Elasticity?

Price elasticity of demand (PE) measures how responsive the quantity demanded of a good is to changes in its price. It indicates the percentage change in quantity demanded resulting from a 1% 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 how sensitive consumers are to price changes. A higher absolute value indicates greater sensitivity.

3. Importance of Price Elasticity

Details: Price elasticity is crucial for businesses to set optimal pricing strategies, predict revenue changes, and understand market dynamics. It helps determine whether price increases will increase or decrease total revenue.

4. Using the Calculator

Tips: Enter the percentage change in quantity demanded and percentage change in price as decimal numbers. Both values are required for calculation.

5. Frequently Asked Questions (FAQ)

Q1: What do different elasticity values mean?
A: |PE| > 1 = elastic, |PE| < 1 = inelastic, |PE| = 1 = unit elastic, PE = 0 = perfectly inelastic, PE = ∞ = perfectly elastic.

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, proportion of income spent, and brand loyalty.

Q4: Why is price elasticity usually negative?
A: Due to the law of demand - price and quantity demanded typically move in opposite directions.

Q5: How do businesses use elasticity information?
A: For pricing strategies, revenue forecasting, product positioning, and competitive analysis.