Use this calculator to determine the elasticity of demand or supply. Enter the original and new quantities and prices in the fields below. Once all values are entered, click the “Calculate Elasticity” button to see the elasticity result.
What is Elasticity?
Elasticity measures the sensitivity of the quantity demanded or supplied of a good or service in response to a price change. It helps to understand how consumers or producers react when prices fluctuate.
- Price Elasticity of Demand: Measures how the quantity demanded changes when the price changes.
- Price Elasticity of Supply: Measures how the quantity supplied changes in response to a price change.
How to Interpret the Results
- Elastic (∣E∣>1|E| > 1∣E∣>1): The quantity demanded/supplied changes more than the price (e.g., luxury goods).
- Inelastic (∣E∣<1|E| < 1∣E∣<1): The quantity demanded/supplied changes less than the price (e.g., basic necessities).
- Unit Elastic (∣E∣=1|E| = 1∣E∣=1): The quantity changes proportionally to the price.
Quick Example
If the price of a product increases by 10% and the quantity demanded decreases by 20%, the demand is elastic (∣E∣=2|E| = 2∣E∣=2).
Factors that Affect Elasticity
- Availability of Substitutes: If there are many alternatives, demand is more elastic.
- Necessity of the Good: Essential goods tend to have inelastic demand (e.g., medicine).
- Time: In the long run, elasticity tends to increase as consumers have more time to adjust their behavior.
Practical Applications
- Businesses: Can adjust prices based on the elasticity of their products. If a good is inelastic, raising the price can increase revenue without a large drop in sales.
- Consumers: Understanding elasticity helps predict how price changes will affect their purchasing decisions, especially for essential versus luxury products.
Tips for Businesses
- If your product is elastic, be cautious when raising prices as you might lose customers.
- If it is inelastic, you may be able to increase prices without significantly affecting sales.
Frequently Asked Questions
- What does it mean if the result is greater than 1?
It means the demand or supply is elastic, meaning it responds more than proportionally to the price change. - Why does elasticity vary between products?
It depends on factors like the nature of the good (necessity or luxury), the availability of substitutes, and the time consumers have to adjust to the price change.
