1. What is Price Elasticity?

Price elasticity of demand (PE) measures how responsive the quantity demanded of a good is to a change in its price. It shows the percentage change in quantity demanded resulting from a one percent change in price.

2. How Does the Calculator Work?

The calculator uses the price elasticity formula:

Where:

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

Explanation: The formula calculates the responsiveness of quantity demanded to price changes. A higher absolute value indicates greater sensitivity to price changes.

3. Importance of Price Elasticity Calculation

Details: Understanding price elasticity helps businesses set optimal pricing strategies, forecast revenue changes, and understand consumer behavior in response to price adjustments.

4. Using the Calculator

Tips: Enter percentage change in quantity demanded and percentage change in price as decimal values (e.g., 10% = 0.10). Ensure price change is not zero to avoid division by zero.

5. Frequently Asked Questions (FAQ)

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

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

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 price elasticity important for businesses?
A: Helps determine optimal pricing, predict revenue changes from price adjustments, and understand competitive positioning.

Q5: Can elasticity be negative?
A: Yes, price elasticity is typically negative due to the inverse relationship between price and quantity demanded (law of demand).