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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 much the quantity demanded of a good changes when its price changes.
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 sensitivity.
Details: Understanding price elasticity helps businesses set optimal pricing strategies, predict revenue changes, and understand market dynamics. It's crucial for economic analysis and business decision-making.
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 coefficient.
Q1: What do different PED values mean?
A: |PED| > 1 = elastic demand, |PED| < 1 = inelastic demand, |PED| = 1 = unitary elastic, PED = 0 = perfectly inelastic, PED = ∞ = perfectly elastic.
Q2: Why is PED usually negative?
A: PED is typically negative due to the inverse relationship between price and quantity demanded (law of demand), though we often refer to the absolute value.
Q3: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time horizon, proportion of income spent, and brand loyalty all influence elasticity.
Q4: How is PED used in business?
A: Businesses use PED to set prices, forecast revenue, develop pricing strategies, and understand competitive positioning.
Q5: What's the difference between elastic and inelastic demand?
A: Elastic demand means quantity is highly responsive to price changes; inelastic demand means quantity is relatively unresponsive to price changes.