1. What is Price Elasticity of Demand?

Price Elasticity of Demand (PED) measures the responsiveness of quantity demanded to changes in price. It shows how much the quantity demanded changes when the price changes by 1%.

2. How Does the Calculator Work?

The calculator uses the price elasticity formula:

Where:

• \( PED \) — Price Elasticity of Demand
• \( \% \text{ Change in Quantity} \) — Percentage change in quantity demanded
• \( \% \text{ Change in Price} \) — Percentage change in price

Interpretation:

• PED > 1: Elastic demand (quantity changes more than price)
• PED < 1: Inelastic demand (quantity changes less than price)
• PED = 1: Unit elastic demand (quantity changes equal to price change)
• PED = 0: Perfectly inelastic (quantity doesn't change)
• PED = ∞: Perfectly elastic (infinite quantity change)

3. Importance of Price Elasticity

Details: Understanding price elasticity helps businesses set optimal prices, predict revenue changes, and develop effective pricing strategies. It's crucial for revenue management and market analysis.

4. Using the Calculator

Tips: Enter percentage changes as decimal numbers (e.g., 10% as 10, -5% as -5). The percentage change in price cannot be zero as division by zero is undefined.

5. Frequently Asked Questions (FAQ)

Q1: What does a negative PED value mean?
A: Negative PED is normal and indicates the inverse relationship between price and quantity demanded (law of demand). We typically use absolute values for interpretation.

Q2: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time period, proportion of income spent, and brand loyalty.

Q3: How is percentage change calculated?
A: Percentage change = [(New Value - Old Value) / Old Value] × 100%

Q4: What are real-world examples of different elasticities?
A: Gasoline (inelastic), Restaurant meals (elastic), Prescription drugs (inelastic), Luxury cars (elastic).

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