ECON101: Principles of Microeconomics (2021.A.01)

The formula for calculating elasticity is:

$$$\displaystyle\text{Price Elasticity of Demand}=\frac{\text{percent change in quantity}}{\text{percent change in price}}$

Let's look at the practical example mentioned earlier about cigarettes. Certain groups of cigarette smokers, such as teenage, minority, low-income, and casual smokers, are somewhat sensitive to changes in price: for every 10 percent increase in the price of a pack of cigarettes, the smoking rates drop about 7 percent. Plugging those numbers into the formula, we get

$$$\displaystyle\text{Price Elasticity of Demand}=\frac{\text{percent change in quantity}}{\text{percent change in price}}=\frac{-7\%}{10\%}=-0.7$