1. What is Price Elasticity of Demand?

Price Elasticity of Demand (PED) measures the responsiveness of quantity demanded to changes in price. It indicates how sensitive consumers are to price changes for a particular good or service.

2. How Does the Calculator Work?

The calculator uses the PED formula:

Where:

• \( PED \) — Price Elasticity of Demand
• \( \%\Delta Q \) — Percentage change in quantity demanded
• \( \%\Delta P \) — Percentage change in price

Explanation: The formula calculates the ratio of percentage change in quantity to percentage change in price, providing insight into demand sensitivity.

3. Importance of PED Calculation

Details: Understanding price elasticity helps businesses set optimal pricing strategies, predict revenue changes, and understand market dynamics. It's crucial for pricing decisions and revenue management.

4. Using the Calculator

Tips: Enter percentage change in quantity and percentage change in price as decimal values (e.g., 10% = 0.10). Price change cannot be zero as it would result in division by zero.

5. Frequently Asked Questions (FAQ)

Q1: What do different PED values indicate?
A: |PED| > 1 = elastic demand, |PED| < 1 = inelastic demand, |PED| = 1 = unitary elastic, PED = 0 = perfectly inelastic, PED = ∞ = perfectly elastic.

Q2: How is percentage change calculated?
A: %Δ = [(New Value - Old Value) / Old Value] × 100. The calculator requires you to input the final percentage change values.

Q3: Why is PED usually negative?
A: Due to the law of demand, price and quantity typically move in opposite directions, resulting in a negative relationship. However, we often use absolute values for interpretation.

Q4: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time period, proportion of income spent, and brand loyalty all influence elasticity.

Q5: How do businesses use PED information?
A: For pricing strategies, revenue forecasting, tax incidence analysis, and understanding competitive positioning in the market.