1. What is Price Elasticity of Demand?

Price Elasticity of Demand (PED) measures the responsiveness of quantity demanded to a change in price. It shows how much the quantity demanded of a good changes when its price changes.

2. How Does the Calculator Work?

The calculator uses the PED formula:

Where:

• \( \%\Delta Q \) — Percentage change in quantity demanded
• \( \%\Delta P \) — Percentage change in price

Explanation: The formula calculates the ratio of the percentage change in quantity demanded to the percentage change in price, providing a measure of how sensitive consumers are to price changes.

3. Importance of PED Calculation

Details: Understanding price elasticity helps businesses set optimal pricing strategies, predict revenue changes, and understand consumer behavior in response to price fluctuations.

4. Using the Calculator

Tips: Enter the percentage change in quantity demanded and percentage change in price as percentages. Both values must be valid numbers, and the percentage change in price cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What does a PED value greater than 1 mean?
A: A PED > 1 indicates elastic demand, meaning quantity demanded is highly responsive to price changes (demand decreases significantly when price increases).

Q2: What does a PED value less than 1 mean?
A: A PED < 1 indicates inelastic demand, meaning quantity demanded is not very responsive to price changes (demand decreases only slightly when price increases).

Q3: What does a PED value equal to 1 mean?
A: A PED = 1 indicates unit elastic demand, meaning the percentage change in quantity demanded equals the percentage change in price.

Q4: Can PED be negative?
A: Yes, PED is typically negative due to the inverse relationship between price and quantity demanded, but economists often use the absolute value for interpretation.

Q5: What factors affect price elasticity of demand?
A: Factors include availability of substitutes, necessity vs luxury, proportion of income spent, and time period considered.