Price Elasticity of Supply and Demand Calculator

What is Price Elasticity?

Price elasticity is a measure of how responsive the quantity demanded or supplied of a good is to a change in its price. It's a key concept in economics that helps businesses and policymakers understand how sensitive consumers and producers are to price changes.

Formula for Price Elasticity

The formula for price elasticity is:

\[Elasticity = \left|\frac{\text{Percentage Change in Quantity}}{\text{Percentage Change in Price}}\right|\]

Where:

• Percentage Change in Quantity = (Change in Quantity / Original Quantity) × 100
• Percentage Change in Price = (Change in Price / Original Price) × 100

Calculation Steps

1. Calculate the percentage change in quantity.
2. Calculate the percentage change in price.
3. Divide the percentage change in quantity by the percentage change in price.
4. Take the absolute value of the result.

Example

Let's consider a scenario where the price of a product increases by 5% and the quantity demanded decreases by 10%:

• Percentage Change in Price: 5%
• Percentage Change in Quantity: -10%

Calculation:

\[Elasticity = \left|\frac{-10\%}{5\%}\right| = 2\]

In this example, the price elasticity of demand is 2, which means the demand is elastic. A 1% increase in price would lead to a 2% decrease in quantity demanded. This information is crucial for businesses in setting prices and for policymakers in understanding market behavior.