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Formula for Price Elasticity of Demand
The standard formula for calculating the price elasticity of demand (\varepsilon) is:\n\n\\varepsilon = -\\frac{\\% \\text{ change in demand}}{\\% \\text{ change in price}}\n\nDue to the law of demand, an increase in price leads to a decrease in quantity demanded, making the ratio of percentage changes negative. By convention, a minus sign is included in the formula to convert the result into a positive number, making the measure of responsiveness easier to interpret and compare.
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A company observes that when it increases the price of its product, the quantity demanded consistently decreases. The standard formula used to calculate the price elasticity of demand is: . What is the primary analytical reason for including the negative sign in this formula?
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