How to Use Price Elasticity of demand Calculator
Price Elasticity of demand Calculator
How to find the Price elasticity of demand
A real world example :
A company is selling earphones, currently the company sells each earphone for $15. With this price the company sells 3,000 a month. The company then decides to change the price to $12 for each earphone. Company then sold 5,000 earphones a month. Now we have our starting price and our price change along with earphones sold for each price, with this information we can calculate the price elasticity of demand.
- We then fill in the formula with our values
- First we want to get the percentage change in quantity demand for a product. The top will look like this
this will give us the percentage change. In this case there was a 25 (rounded) percent change in the quantity demand after the price change
- Then we will do the bottom of our formula, the price change
- Again we put in our old values to the right and new to the left so our bottom line will look like this:
(12-15)/(12+15) this will give us the price change percentage, which is -11 percent!
- Finally we divide the top by the bottom
- 25/-11 = -2.25, our Elasticity is Elastic
Price Elasticity of demand is used in economics to measure the effect a price change has on a products demand. It is often used while discussing price sensitivity.
Three types of Elasticity
- Inelastic demand
- Inelastic demand is if the price change is more then the quantity demand change.
- Elastic demand
- Is when the price change percentage is smaller than the quantity demand change.
- When the change in price of a product is equal to the change in quantity demanded.
Analyzing Price Elasticity
Now we can do the calculations and discover the elasticity. The formula for the price elasticity of demand is:
[(FQ -IQ)/(FQ+ IQ)]/[(FP-IP)/(FP+IP)]
The percentage of change in quantity demand for a product / percent change in price
- FQ = Demand after the price change
- IQ = Demand before price change
- PF = Final Price
- IP = Initial Price
- If the result is = 1 then the elasticity is Unitary.
- If the result is > 1 then the elasticity is Elastic
- If the result is < 1 then the elasticity is inelastic