1. What is Price Elasticity of Demand?

Price elasticity of demand measures how responsive the quantity demanded of a good is to changes 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 of demand formula:

Where:

• \( E \) — Price elasticity coefficient
• \( \%\Delta Q \) — Percentage change in quantity demanded
• \( \%\Delta P \) — Percentage change in price

Explanation: The formula calculates the responsiveness of quantity demanded to price changes. A higher absolute value indicates greater sensitivity to price changes.

3. Importance of Elasticity Coefficient

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

4. Using the Calculator

Tips: Enter percentage changes as decimal numbers (e.g., 10% as 10, -5% as -5). The calculator will determine both the elasticity coefficient and the type of elasticity (elastic, inelastic, or unit elastic).

5. Frequently Asked Questions (FAQ)

Q1: What do different elasticity values mean?
A: |E| > 1 = Elastic (demand sensitive to price), |E| < 1 = Inelastic (demand insensitive to price), |E| = 1 = Unit Elastic (proportional change).

Q2: How is percentage change calculated?
A: %Δ = [(New Value - Old Value) / Old Value] × 100. Use the resulting percentage in 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 impact of price changes, and understand competitive positioning.

Q5: Can elasticity be negative?
A: Yes, due to the inverse relationship between price and quantity demanded. We typically use absolute values when interpreting elasticity types.