The Concept of Point Price Elasticity in Economics
What is point price elasticity and how is it calculated?
Point price elasticity is a measure of how the quantity demanded of a good changes in response to a change in price at a specific point. How do we calculate point price elasticity in economics?
Calculation and Interpretation of Point Price Elasticity
To calculate point price elasticity, we use the formula: E = (%ΔQd / %ΔP) x (P / Q), where E is elasticity, %ΔQd is percentage change in quantity demanded, %ΔP is percentage change in price, P is initial price, and Q is initial quantity demanded.
In the given scenario, the point price elasticity is calculated to be 0.42%, indicating that the good is price inelastic. This means that a change in price will result in a relatively smaller change in quantity demanded.
Understanding Price Elasticity in Economics
Price elasticity of demand measures how sensitive the quantity demanded of a good is to changes in its price. A value of less than 1 indicates that the good is price inelastic, as seen in the calculation provided.
Price elasticity is essential for firms to understand how changes in price will impact their revenue and quantity demanded. It helps in making strategic pricing decisions to maximize profits and sales.
For further information on price elasticity and its implications, you can explore the concept in detail here.