# Elasticity of Demand

## Price Elasticity of Demand Calculator

## Elasticity of Demand Formula

The formula to determine price elasticity of demand is as follows:

(E) Elasticity =

Percent change in quantity demand for product x

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Percent change in price for product x

If E > 1 then the product is considered elastic

If E < 1 then the product is considered inelastic

If E = 1 then the product is considered unitary

## Elasticity of Demand Sample Problem

Company ElastiPad produces tablets competing with the iPad. Their demand curve has shown that their product is extremely elastic. Six months into the release of their new product, elastoPad, they reduced the price from $200 to $100 to test the market and their theory that they could improve revenues by making the change. It was a huge success! At $200 demand for their elastoPad was 20,000 units, but with the reduced price of $100 demand topped 60,000 units! At $200 revenue was $4 million, whereas at $100 revenue reached $6 million. Using the above formula, to solve for E, the problem looks like the following:

E =

[(60,000 – 20,000) / [(60,000 + 20,000)/2]]

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[($200 - $100)/[($200 + $100)/2]]

E = (40,000/40,000) / (100/150)

E = 1 / .67

E = 1.49: This product is considered elastic because E > 1