How do i calculate price of elasticity demands?
The price elasticity of demand can be calculated using the following formula:
Price elasticity of demand = (% change in quantity demanded) / (% change in price)
To calculate the % change in quantity demanded, you need to subtract the initial quantity demanded from the final quantity demanded, divide it by the initial quantity demanded, and then multiply by 100. The same approach can be used to calculate the % change in price by subtracting the initial price from the final price, dividing it by the initial price, and multiplying by 100.
Let's say the initial quantity demanded is Q1, the final quantity demanded is Q2, the initial price is P1, and the final price is P2. The formula becomes:
Price elasticity of demand = ((Q2 - Q1) / Q1) / ((P2 - P1) / P1)
For example, if the initial quantity demanded is 100 units, the final quantity demanded is 80 units, the initial price is $10, and the final price is $12, the calculation would be:
Price elasticity of demand = ((80 - 100) / 100) / ((12 - 10) / 10) = (-20 / 100) / (2 / 10) = -0.2 / 0.2 = -1
The resulting value of -1 indicates that the demand is relatively elastic, meaning a 1% increase in price leads to a 1% decrease in quantity demanded.