Price And Income Elasticity Of Demand Calculator

Elasticity Formulas:

\[ PED = \frac{\Delta Q / Q}{\Delta P / P} \] \[ IED = \frac{\Delta Q / Q}{\Delta I / I} \]

Change in Quantity (ΔQ):

Initial Quantity (Q):

Change in Price (ΔP):

USD

Initial Price (P):

USD

Change in Income (ΔI):

USD

Initial Income (I):

USD

Price Elasticity of Demand (PED):

Income Elasticity of Demand (IED):

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1. What Are Price and Income Elasticity of Demand?

Price Elasticity of Demand (PED) measures how much the quantity demanded of a good responds to a change in its price. Income Elasticity of Demand (IED) measures how much the quantity demanded responds to changes in consumer income.

2. How Does the Calculator Work?

The calculator uses the following formulas:

\[ PED = \frac{\Delta Q / Q}{\Delta P / P} \] \[ IED = \frac{\Delta Q / Q}{\Delta I / I} \]

Where:

\( \Delta Q \) — Change in quantity demanded (unitless)
\( Q \) — Initial quantity demanded (unitless)
\( \Delta P \) — Change in price (USD)
\( P \) — Initial price (USD)
\( \Delta I \) — Change in income (USD)
\( I \) — Initial income (USD)

3. Interpretation of Results

PED Interpretation:

PED < 0: Normal good (demand decreases when price increases)
|PED| > 1: Elastic demand (responsive to price changes)
|PED| < 1: Inelastic demand (less responsive to price changes)
|PED| = 1: Unit elastic

IED Interpretation:

IED > 0: Normal good (demand increases with income)
IED < 0: Inferior good (demand decreases with income)
IED > 1: Luxury good (demand grows faster than income)
0 < IED < 1: Necessity good (demand grows slower than income)

4. Using the Calculator

Tips: Enter all values as absolute numbers. The calculator handles both positive and negative changes automatically. Ensure no denominator values (Q, P, I) are zero.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between PED and IED?
A: PED measures sensitivity to price changes, while IED measures sensitivity to income changes.

Q2: Can elasticity values be negative?
A: PED is typically negative (price up, quantity down). IED can be positive (normal goods) or negative (inferior goods).

Q3: What does a PED of -2.5 mean?
A: A 1% price increase leads to a 2.5% quantity decrease - highly elastic demand.

Q4: How is this different from cross-price elasticity?
A: Cross-price elasticity measures how demand for one good changes with another good's price.

Q5: What are real-world examples of different elasticities?
A: Gasoline often has inelastic demand, while luxury cars have elastic demand. Generic food items are often inferior goods.