1. What is Price Elasticity of Demand?

Price Elasticity of Demand (PED) measures how responsive the quantity demanded of a good is to changes in its price. It quantifies the percentage change in quantity demanded resulting from a one percent change in price.

2. How Does the Calculator Work?

The calculator uses the PED formula:

Where:

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

Explanation: The formula calculates the responsiveness of consumers to price changes. A higher absolute value indicates greater 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 changes as decimal numbers (e.g., 10% as 10, -5% as -5). The calculator will determine if demand is elastic (>1), inelastic (<1), or unit elastic (=1).

5. Frequently Asked Questions (FAQ)

Q1: What does different PED values mean?
A: PED > 1: Elastic demand (quantity changes more than price); PED < 1: Inelastic demand (quantity changes less than price); PED = 1: Unit elastic.

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 PED used in business?
A: For pricing strategies, revenue forecasting, tax incidence analysis, and understanding consumer behavior.

Q4: Can PED be negative?
A: Yes, PED is typically negative due to the inverse relationship between price and quantity demanded, but we often use absolute values for interpretation.

Q5: What is perfectly elastic and inelastic demand?
A: Perfectly elastic: PED = ∞ (horizontal demand curve); Perfectly inelastic: PED = 0 (vertical demand curve).