What is the formula for calculating Price Elasticity of Demand?

The formula for calculating Price Elasticity of Demand is the percentage change in quantity demanded divided by the percentage change in price. This measures how responsive the quantity demanded of a good is to a change in its price. If demand is elastic, a small change in price will lead to a larger change in the quantity demanded. Conversely, if demand is inelastic, quantity demanded will change very little in response to price changes.

Understanding this relationship is crucial in economics because it helps businesses and policymakers predict how changes in pricing will affect consumer behavior and overall market demand. Thus, the correct formulation captures the concept of elasticity accurately by highlighting the relationship between shifts in price and corresponding responses in quantity demanded.