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Price Elasticity Formula:
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Price elasticity measures how responsive the quantity demanded or supplied of a good is to changes in its price. It is calculated as the percentage change in quantity divided by the percentage change in price.
The calculator uses the price elasticity formula:
Where:
Explanation: The formula calculates how much the quantity changes in response to a price change. A value greater than 1 indicates elastic demand/supply, while less than 1 indicates inelastic.
Details: Price elasticity is crucial for businesses to set optimal prices, for governments to design tax policies, and for economists to understand market behavior and consumer responsiveness.
Tips: Enter percentage change in quantity 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 is the difference between elastic and inelastic demand?
A: Elastic demand means quantity is highly responsive to price changes (|E| > 1), while inelastic demand means quantity is not very responsive to price changes (|E| < 1).
Q2: Can elasticity be negative?
A: Yes, for normal goods, price elasticity of demand is negative because price and quantity move in opposite directions. However, we often use absolute value when discussing elasticity magnitude.
Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time horizon, and proportion of income spent on the good all affect elasticity.
Q4: How is supply elasticity different from demand elasticity?
A: Supply elasticity measures how responsive quantity supplied is to price changes, while demand elasticity measures how responsive quantity demanded is to price changes.
Q5: What does unit elastic mean?
A: Unit elastic means the percentage change in quantity equals the percentage change in price (|E| = 1), resulting in unchanged total revenue.