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 much the quantity demanded of a good changes when its price changes.

2. How Does the Calculator Work?

The calculator uses the Price Elasticity of Demand 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 the percentage change in quantity demanded to the percentage change in price, providing insight into consumer sensitivity to price changes.

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 the percentage change in quantity demanded and percentage change in price as decimal numbers. Both values are required and the percentage change in price cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What do different PED values indicate?
A: |PED| > 1 indicates elastic demand, |PED| < 1 indicates inelastic demand, and |PED| = 1 indicates unit elastic demand.

Q2: How is percentage change calculated?
A: Percentage change = [(New Value - Old Value) / Old Value] × 100%

Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time period, and proportion of income spent on the good.

Q4: Why can't percentage change in price be zero?
A: Division by zero is mathematically undefined. Price elasticity requires an actual price change to be calculated.

Q5: How is PED used in business decisions?
A: Businesses use PED to determine optimal pricing, forecast revenue changes, and develop marketing strategies based on consumer price sensitivity.