1. What is Price Elasticity?

Price elasticity of demand measures how responsive the quantity demanded of a good is to changes in its price. It quantifies 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:

• \( E \) — 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 to the percentage change in price, providing a measure of demand sensitivity.

3. Importance of Price Elasticity

Details: Understanding price elasticity helps businesses set optimal pricing strategies, forecast revenue changes, and understand consumer behavior. It's crucial for economic analysis and market planning.

4. Using the Calculator

Tips: Enter both percentage changes as decimal numbers (e.g., 10% as 10, -5% as -5). The price change cannot be zero as division by zero is undefined.

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, E = 0 = perfectly inelastic, E = ∞ = perfectly elastic.

Q2: Why is price elasticity important for businesses?
A: It helps determine how price changes affect total revenue and guides pricing decisions for profit maximization.

Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, proportion of income, time horizon, and brand loyalty.

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

Q5: Can elasticity be negative?
A: Yes, for normal goods, elasticity is negative (inverse relationship between price and quantity), but we often use absolute value for interpretation.