Price Elasticity of Demand Calculation

How is the absolute value of the price elasticity of demand calculated?

The absolute value of the price elasticity of demand can be calculated by dividing the percentage change in quantity demanded by the percentage change in price.

Price elasticity of demand is a measure of how much the quantity demanded of a good or service changes in response to a change in price. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price. The result is usually expressed as a negative number, but it is important to take the absolute value when interpreting the elasticity.

For example, if the price of cell phones increases by 5 percent and the quantity demanded falls by 2 percent, the calculation would be as follows:

Price Elasticity of Demand = Percentage Change in Quantity Demanded / Percentage Change in Price

Percentage Change in Quantity Demanded = -2% (since the quantity demanded falls by 2%)

Percentage Change in Price = 5% (since the price increases by 5%)

Price Elasticity of Demand = -2% / 5% = -0.4

Since we are looking for the absolute value of the price elasticity of demand, we take the absolute value of -0.4, which is 0.4.