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Price Elasticity Formula:
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The Price Elasticity Coefficient measures the responsiveness of quantity demanded to changes in price. It indicates how much the quantity demanded changes when the price changes by 1%.
The calculator uses the price elasticity formula:
Where:
Explanation: The coefficient shows the percentage change in quantity demanded for each 1% change in price. A higher absolute value indicates greater sensitivity to price changes.
Details: Price elasticity is crucial for businesses to set optimal pricing strategies, forecast revenue changes, and understand market dynamics. It helps determine whether price increases will increase or decrease total revenue.
Tips: Enter percentage change in quantity demanded and percentage change in price as decimal percentages (e.g., 10% as 10, -5% as -5). The denominator (%ΔP) cannot be zero.
Q1: What do different elasticity values mean?
A: |E| > 1 = elastic (demand sensitive to price), |E| < 1 = inelastic (demand insensitive to price), |E| = 1 = unit elastic, E = 0 = perfectly inelastic, E = ∞ = perfectly elastic.
Q2: How is percentage change calculated?
A: %Δ = [(New Value - Old Value) / Old Value] × 100%. Use positive values for increases and negative values for decreases.
Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, proportion of income, time period, and brand loyalty all influence elasticity.
Q4: Can elasticity be negative?
A: Yes, typically price elasticity is negative due to the inverse relationship between price and quantity demanded, though we often use absolute values for interpretation.
Q5: How is elasticity used in business decisions?
A: Companies use elasticity to set prices that maximize revenue, determine tax incidence, and develop pricing strategies for different market segments.