Price elasticity of demand is a measure of how sensitive the quantity demanded of a good or service is to its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. If the elasticity is greater than 1, the good is considered elastic, meaning that a small change in price leads to a large change in quantity demanded. If the elasticity is less than 1, the good is considered inelastic, meaning that a change in price has little effect on the quantity demanded. If the elasticity is equal to 1, the good is said to have unitary elasticity, meaning that a change in price leads to an equal percentage change in quantity demanded.

The formula for the coefficient of price elasticity of demand for a good is:

$$\text{Price Elasticity of Demand} = \frac{\text{Percentage Change in Quantity Demanded}}{\text{Percentage Change in Price}}$$

Price elasticity of demand is used by economists to understand how supply and demand for a product change when its price changes. It can also be used to assess where the incidence of a per-unit tax is falling or to predict where it will fall if the tax is imposed. Understanding the price elasticity of demand can help guide a business’s marketing and selling strategies to maximize profitability.