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Price Elasticity Formula:
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Price elasticity measures the responsiveness of the quantity demanded of a good to a change in its price. It is a crucial concept in economics that helps businesses understand how price changes affect consumer demand.
The calculator uses the price elasticity formula:
Where:
Explanation: The formula calculates how much the quantity demanded changes in response to a 1% change in price. A higher absolute value indicates greater sensitivity to price changes.
Details: Understanding price elasticity helps businesses set optimal pricing strategies, forecast revenue changes, and make informed decisions about price adjustments. It also aids in market analysis and competitive positioning.
Tips: Enter the percentage change in quantity demanded and percentage change in price as decimal values (e.g., 10% = 10, -5% = -5). The calculator will compute the price elasticity coefficient.
Q1: What do different elasticity values mean?
A: |PE| > 1 = elastic demand, |PE| < 1 = inelastic demand, |PE| = 1 = unitary elastic, PE = 0 = perfectly inelastic, PE = ∞ = perfectly elastic.
Q2: How is percentage change calculated?
A: %Δ = [(New Value - Old Value) / Old Value] × 100. Ensure both percentage changes use the same base period.
Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time period, brand loyalty, and proportion of income spent on the good.
Q4: Can elasticity be positive?
A: For normal goods, elasticity is negative (price increase → quantity decrease). Positive elasticity indicates Giffen or Veblen goods.
Q5: How accurate is this calculation?
A: This provides the point elasticity. For more accurate analysis over a range, arc elasticity may be more appropriate.