Price Elasticity Of Demand Calculator

Price Elasticity of Demand Formula:

\[ PED = \frac{\Delta Q / Q}{\Delta P / P} = \frac{dQ}{dP} \times \frac{P}{Q} \]

Initial Price (P₁):

New Price (P₂):

Initial Quantity (Q₁):

New Quantity (Q₂):

Price Elasticity of Demand (PED):

Elasticity Type:

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1. What is Price Elasticity of Demand?

Price Elasticity of Demand (PED) measures how much the quantity demanded of a good responds to a change in its price. It's calculated as the percentage change in quantity demanded divided by the percentage change in price.

2. How Does the Calculator Work?

The calculator uses the midpoint formula for PED:

\[ PED = \frac{\Delta Q / \text{Average Q}}{\Delta P / \text{Average P}} = \frac{(Q_2 - Q_1) / ((Q_1 + Q_2)/2)}{(P_2 - P_1) / ((P_1 + P_2)/2)} \]

Where:

\( P_1 \) — Initial price
\( P_2 \) — New price
\( Q_1 \) — Initial quantity demanded
\( Q_2 \) — New quantity demanded
\( \Delta \) — Change in the variable

Explanation: The midpoint formula provides more accurate elasticity calculations than the simple percentage change formula, especially for large changes.

3. Importance of PED Calculation

Details: Understanding PED helps businesses set optimal prices, governments predict tax revenue impacts, and economists analyze market behavior. It determines whether total revenue will increase or decrease with a price change.

4. Using the Calculator

Tips: Enter initial and new prices in dollars, initial and new quantities in units. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What does a negative PED value mean?
A: Most goods have negative PED (price increase leads to lower demand), but we often use absolute value when discussing elasticity.

Q2: What are typical PED values?
A: |PED| > 1: Elastic demand; |PED| < 1: Inelastic demand; |PED| = 1: Unit elastic; PED = 0: Perfectly inelastic; PED = ∞: Perfectly elastic.

Q3: What factors affect PED?
A: Availability of substitutes, necessity vs luxury, proportion of income spent, time horizon, and brand loyalty.

Q4: How is PED used in business?
A: For elastic demand, lowering prices may increase revenue. For inelastic demand, raising prices may increase revenue.

Q5: What's the difference between PED and income elasticity?
A: PED measures response to price changes, while income elasticity measures response to income changes.