Price elasticity of demand and basic
application in Excel
Price elasticity of demand is a term from Economics. It is defined
as the absolute value of the percent change in the quantity of a product or
service demanded by consumers resulting from a percentage change in the
price, i.e., |(DQ/Q)/(DP/P)|.
The downloadable Excel workbook interactively illustrates the demand elasticity for a
linear demand function. It also
includes a graphical display of the profit function for a monopolist.
The top part of the worksheet allows one to customize the linear demand
function. Do so by entering two data points each representing a price
and a quantity.
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Figure 1
The lower part of the worksheet is an interactive display of the market
clearing price and quantity, the associated demand elasticity, and the
monopolist's profit.
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Figure 2
The worksheet contains additional information in the form of cell
comments.
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