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 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 demanded to 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 percentage change in quantity demanded and percentage change in price as decimal numbers. Both values are required for calculation.

5. Frequently Asked Questions (FAQ)

Q1: What do different PED values indicate?
A: PED > 1 indicates elastic demand, PED < 1 indicates inelastic demand, PED = 1 indicates unit elasticity, and PED = 0 indicates perfectly inelastic 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 is PED usually negative?
A: Due to the law of demand, price and quantity typically move in opposite directions, resulting in negative PED values.

Q5: How do businesses use PED information?
A: For pricing strategies, revenue forecasting, tax incidence analysis, and understanding consumer behavior patterns.