1. What is Price Elasticity of Demand?

Price Elasticity of Demand measures the responsiveness of quantity demanded to changes in price. It indicates how sensitive consumers are to price changes for a particular good or service.

2. How Does the Calculator Work?

The calculator uses the Price Elasticity of Demand formula:

Where:

• \( E \) — Price Elasticity of Demand
• \( \%\Delta Q \) — 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 insight into consumer behavior and market dynamics.

3. Importance of Elasticity Calculation

Details: Understanding price elasticity helps businesses set optimal pricing strategies, predict revenue changes, and understand market competition. It also aids policymakers in tax and subsidy decisions.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What do different elasticity values mean?
A: |E| > 1 = elastic demand, |E| < 1 = inelastic demand, |E| = 1 = unit elastic demand, E = 0 = perfectly inelastic, E = ∞ = 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 period, proportion of income spent, and brand loyalty.

Q4: Why is elasticity usually negative?
A: Due to the law of demand - price and quantity demanded typically move in opposite directions, resulting in negative elasticity values.

Q5: How is elasticity used in business decisions?
A: Helps determine optimal pricing, forecast revenue changes, evaluate market competition, and make production decisions.