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, holding all other factors constant.

2. How Does the Calculator Work?

The calculator uses the Price Elasticity of Demand formula:

Where:

• \( E_d \) — Price Elasticity of Demand (dimensionless)
• \( \%\Delta Q \) — Percentage change in quantity demanded (%)
• \( \%\Delta P \) — Percentage change in price (%)

Explanation: The formula calculates the ratio of the percentage change in quantity demanded to the percentage change in price, providing a measure of how sensitive consumers are to price changes.

3. Importance of Elasticity Calculation

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.

4. Using the Calculator

Tips: Enter the percentage change in quantity demanded and percentage change in price as decimal numbers. Both values must be valid and the percentage change in price cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What does the elasticity value indicate?
A: |E_d| > 1 indicates elastic demand, |E_d| < 1 indicates inelastic demand, and |E_d| = 1 indicates unit elastic demand.

Q2: How is percentage change calculated?
A: Percentage change = [(New Value - Old Value) / Old Value] × 100%

Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury goods, time horizon, and proportion of income spent on the good.

Q4: Can elasticity be negative?
A: Yes, due to the law of demand, elasticity is typically negative since price and quantity move in opposite directions.

Q5: How is elasticity used in business decisions?
A: Businesses use elasticity to determine optimal pricing, forecast revenue, and understand how price changes affect sales volume.