1. What is Price Elasticity of Demand?

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, expressed as a ratio of percentage changes.

2. How Does the Calculator Work?

The calculator uses the price elasticity of demand formula:

Where:

• \( E_d \) — Price elasticity of demand (dimensionless)
• \( \%\Delta Q_d \) — 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 Elasticity Calculation

Details: Understanding price elasticity helps businesses set optimal prices, predict revenue changes, and develop effective pricing strategies. It's crucial for market analysis and economic planning.

4. Using the Calculator

Tips: Enter percentage change in quantity demanded and percentage change in price as decimal numbers (e.g., 10% as 10, -5% as -5). Price change cannot be zero.

5. Frequently Asked Questions (FAQ)

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

Q2: How does elasticity affect total revenue?
A: For elastic demand, price increase reduces revenue; for inelastic demand, price increase increases revenue.

Q3: What factors influence price elasticity?
A: Availability of substitutes, necessity vs luxury, time horizon, proportion of income spent, and brand loyalty.

Q4: Can elasticity be negative?
A: Yes, due to the law of demand, price and quantity move in opposite directions, making elasticity typically negative (though often discussed in absolute terms).

Q5: How is percentage change calculated?
A: %Δ = [(New Value - Old Value) / Old Value] × 100%