Price elasticity of demand (sometimes referred to simply as price elasticity or elasticity of demand) measures the responsiveness of quantity demanded to a price. The formula for price elasticity of demand (PEoD) is: PEoD = (% Change in Quantity Demanded)/(% Change in Price) (Note that price elasticity of demand is different from the slope of the demand curve, even though the slope of the demand curve also measures the responsiveness of demand to price, in a way.) 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.” Using the chart on the bottom of the page, we’ll walk you through answering this question. (Your course may use the more complicated Arc Price Elasticity of Demand formula. If so, you’ll need to see the article on Arc Elasticity) First, we’ll need to find the data we need. We know that the original price is \$9 and the new price is \$10, so we have Price(OLD)=\$9 and Price(NEW)=\$10. From the chart, we see that the quantity demanded when the price is \$9 is 150 and when the price is \$10 is 110. Since we’re going from \$9 to \$10, we have QDemand(OLD)=150 and QDemand(NEW)=110, where “QDemand” is short for “Quantity Demanded.” Thus we have: 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. It’s best to calculate these one at a time. Calculating the Percentage Change in Quantity Demanded. The formula used to calculate the percentage change in quantity demanded is: When we analyze price elasticities we’re concerned with their absolute value, so we ignore the negative value. We conclude that the price elasticity of demand when the price increases from \$9 to \$10 are 2.4005. A good economist is not just interested in calculating numbers. The number is a means to an end; in the case of price elasticity of demand it is used to see how sensitive the demand for a good is to a price change. The higher the price elasticity, the more sensitive consumers are to price changes. A very high price elasticity suggests that when the price of a good goes up, consumers will buy a great deal less of it and when the price of that good goes down, consumers will buy a great deal more. A very low price elasticity implies just the opposite, that changes in price have little influence on demand.