Video:Price Elasticity of Demandwith Mike Moffatt
Price elasticity of demand is used to see how sensitive the demand for a good is to a price change. Learn to calculate the price elasticity of demand with this helpful video.See Transcript
Transcript:Price Elasticity of DemandPrice elasticity of demand it is used to see how sensitive the demand for a good is to a price change.
The Formula for the Price Elasticity of Demand:
- % change in quantity demanded divided by % change in prices
Examples to Calculate Price Elasticity of Demand:You may be asked the question, "Given the following data, calculate the price elasticity of demand when the price changes from $9.00 to $10.00"
We know that the original price is $9 and the new price is $10. From the data, we see that the quantity demanded when the price is $9 is 150 and when the price is $10 is 110.
To calculate the price elasticity, we need to know what the percentage change in quantity demand is and what the percentage change in price is. The formula used to calculate the percentage change in quantity demanded is:
- New Quantity Demanded minus Old Quantity Demanded divided by Old Quantity Demanded. That is 110 - 150 / 150 = -40/150 = -0.2667
Similar to before, the formula used to calculate the percentage change in price is:
- New price minus Old Price, divided by Old Price, that is 0.1111
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