1. What is Elasticity of Demand?

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 Elasticity of Demand formula:

Where:

• \( E_d \) — Elasticity of Demand (dimensionless)
• \( \%\Delta Q_d \) — 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 price sensitivity.

3. Importance of Elasticity Calculation

Details: Understanding elasticity helps businesses set optimal prices, predict revenue changes, and develop effective pricing strategies. It also aids in economic analysis and market forecasting.

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 do different elasticity values mean?
A: |E_d| > 1 = elastic demand, |E_d| < 1 = inelastic demand, |E_d| = 1 = unit elastic demand.

Q2: Why can't percentage change in price be zero?
A: Division by zero is mathematically undefined. Elasticity calculation requires a price change to measure responsiveness.

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

Q4: How is percentage change calculated?
A: %Δ = [(New Value - Old Value) / Old Value] × 100%

Q5: What is the relationship between elasticity and revenue?
A: For elastic demand, price decrease increases revenue; for inelastic demand, price increase increases revenue.