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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, providing insights into consumer behavior and market dynamics.
Details: Understanding price elasticity helps businesses set optimal pricing strategies, predict revenue changes, and understand market competition. It's crucial for economic analysis and business planning.
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 does different PED values mean?
A: |PED| > 1 = Elastic (demand sensitive to price), |PED| < 1 = Inelastic (demand insensitive to price), |PED| = 1 = Unit Elastic (proportional change).
Q2: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time period, brand loyalty, and proportion of income spent on the good.
Q3: How is PED related to total revenue?
A: For elastic demand, price increase reduces revenue; for inelastic demand, price increase increases revenue.
Q4: Can PED be positive?
A: Typically negative due to inverse price-quantity relationship, but we use absolute value for interpretation. Giffen goods can show positive PED.
Q5: What are real-world examples of different elasticities?
A: Gasoline (inelastic), luxury cars (elastic), prescription drugs (inelastic), restaurant meals (elastic).