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Price Elasticity of Demand Formula:
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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.
The calculator uses the Price Elasticity of Demand formula:
Where:
Explanation: The formula calculates the ratio of percentage change in quantity demanded to percentage change in price. A negative value indicates normal goods (price increase leads to demand decrease), while positive values indicate Giffen goods.
Details: Understanding price elasticity helps businesses set optimal pricing strategies, forecast revenue changes, and understand consumer behavior. It's crucial for pricing decisions, tax incidence analysis, and market strategy development.
Tips: Enter percentage change in quantity demanded and percentage change in price as decimal numbers (e.g., 10% as 10, -5% as -5). The calculator will compute the elasticity and classify it as elastic, inelastic, or unit elastic.
Q1: What do different elasticity values mean?
A: |PED| > 1 = Elastic (demand sensitive to price), |PED| < 1 = Inelastic (demand insensitive to price), |PED| = 1 = Unit Elastic (proportional change).
Q2: Why is PED usually negative?
A: For most goods, price and quantity demanded move in opposite directions (law of demand), resulting in negative elasticity.
Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time horizon, proportion of income spent, and brand loyalty.
Q4: How is elasticity used in business?
A: For pricing strategy, revenue forecasting, tax burden analysis, and understanding competitive positioning.
Q5: What's the difference between point and arc elasticity?
A: Point elasticity measures at a specific price point, while arc elasticity measures over a price range. This calculator uses point elasticity.