Coefficient of Price Elasticity of Demand Calculator

Price Elasticity of Demand Formula:

\[ PED = \frac{\%\Delta Q_d}{\%\Delta P} \]

Initial Quantity Demanded (Q₁):

units

Final Quantity Demanded (Q₂):

units

Initial Price (P₁):

Final Price (P₂):

Price Elasticity of Demand (PED):

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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, holding all other factors constant.

2. How Does the Calculator Work?

The calculator uses the midpoint formula for Price Elasticity of Demand:

\[ PED = \frac{\%\Delta Q_d}{\%\Delta P} = \frac{\frac{Q_2 - Q_1}{\frac{Q_1 + Q_2}{2}}}{\frac{P_2 - P_1}{\frac{P_1 + P_2}{2}}} \]

Where:

\( PED \) — Price Elasticity of Demand coefficient
\( Q_1 \) — Initial quantity demanded
\( Q_2 \) — Final quantity demanded
\( P_1 \) — Initial price
\( P_2 \) — Final price
\( \%\Delta Q_d \) — Percentage change in quantity demanded
\( \%\Delta P \) — Percentage change in price

Explanation: The midpoint method provides a more accurate elasticity calculation by using average values, avoiding the bias that can occur when using initial or final values as the base.

3. Importance of PED Calculation

Details: Understanding price elasticity helps businesses set optimal pricing strategies, predict revenue changes, and understand consumer behavior. It's crucial for economic analysis and market planning.

4. Using the Calculator

Tips: Enter initial and final quantities demanded and corresponding prices. All values must be positive numbers. The calculator uses the midpoint formula for most accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What do different PED values mean?
A: |PED| > 1 = elastic demand; |PED| < 1 = inelastic demand; |PED| = 1 = unit elastic; PED = 0 = perfectly inelastic; PED = ∞ = perfectly elastic.

Q2: Why is PED usually negative?
A: PED is typically negative due to the law of demand - as price increases, quantity demanded decreases, and vice versa.

Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time period, proportion of income spent, and brand loyalty.

Q4: How does elasticity affect total revenue?
A: For elastic demand, price increase reduces total revenue; for inelastic demand, price increase increases total revenue.

Q5: What's the difference between arc and point elasticity?
A: Arc elasticity (used here) measures elasticity over a price range, while point elasticity measures at a specific price point.