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Price Elasticity of Demand Formula:
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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.
The calculator uses the price elasticity formula:
Where:
Explanation: The formula calculates the ratio of the percentage change in quantity to the percentage change in price. A negative value indicates normal goods, while positive values indicate Giffen goods.
Details: Understanding price elasticity helps businesses set optimal prices, predict revenue changes, and develop effective pricing strategies. It also aids in economic analysis and market research.
Tips: Enter percentage change in quantity and percentage change in price as decimal numbers. 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| > 1 = Elastic (quantity responds strongly to price changes), |E| < 1 = Inelastic (quantity responds weakly), |E| = 1 = Unit elastic.
Q2: Why is elasticity usually negative?
A: For normal goods, price and quantity move in opposite directions (law of demand), resulting in negative elasticity values.
Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time horizon, and proportion of income spent on the good.
Q4: How is elasticity used in business?
A: Companies use elasticity to predict how price changes will affect total revenue and to optimize pricing strategies.
Q5: What's the difference between elastic and inelastic demand?
A: Elastic demand means consumers are price-sensitive; inelastic demand means they are less responsive to price changes.