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Price Elasticity of Demand Formula:
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Price Elasticity of Demand (E_d) 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 the percentage change in quantity demanded to the percentage change in price. A higher absolute value indicates greater sensitivity to price changes.
Details: Understanding price elasticity helps businesses set optimal pricing strategies, predict revenue changes, and understand consumer behavior. It's crucial for economic analysis and market planning.
Tips: Enter the 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 and classify it as elastic, inelastic, or unit elastic.
Q1: What do different elasticity values mean?
A: |E_d| > 1 = Elastic (demand is sensitive to price changes), |E_d| < 1 = Inelastic (demand is insensitive to price changes), |E_d| = 1 = Unit Elastic (proportional change).
Q2: How is percentage change calculated?
A: % Change = [(New Value - Old Value) / Old Value] × 100%. Use positive values for increases and negative values for decreases.
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 usually negative?
A: Due to the law of demand, price and quantity demanded typically move in opposite directions, resulting in negative elasticity values.
Q5: How do businesses use elasticity information?
A: For pricing strategies, revenue forecasting, tax incidence analysis, and understanding competitive positioning in the market.