Question

Calculate price elasticity of demand

Short answer

The price elasticity of demand concept is explained

Step-by-step solution

Introduction 

The ratio of the percentage change in quantity demanded of a product to the percentage change in price is known as price elasticity of demand. Economists use it to figure out how supply and demand change when the price of a product changes.

Calculating price elasticity of demand

Elasticity is calculated using the following formula:

$\text{Price Elasticity of Demand}=\frac{\text{percent change in quantity}}{\text{percent change in price}}.$

Example for calculating price elasticity of demand

Teenagers, minorities, low-income smokers, and casual smokers are particularly sensitive to price changes: for every ten percent increase in the price of a pack of cigarettes, smoking rates decline by roughly seven percent. We obtain by plugging those numbers into the formula

$\text{Price Elasticity of Demand}=\frac{\text{percent change in quantity}}{\text{percent change in price}}=\frac{-7\%}{10\%}=-0.7$