1. What is Price Elasticity of Demand?

Price Elasticity of Demand (PED) measures how much the quantity demanded of a good responds to a change in its price. It's a crucial concept in economics that helps businesses and policymakers understand consumer behavior.

2. How Does the Calculator Work?

The calculator uses the basic elasticity formula:

Where:

• \( \%\Delta Q \) — Percentage change in quantity demanded
• \( \%\Delta P \) — Percentage change in price

Interpretation:

• PED > 1: Elastic demand (quantity changes more than price)
• PED = 1: Unit elastic
• PED < 1: Inelastic demand (quantity changes less than price)
• PED = 0: Perfectly inelastic
• PED = ∞: Perfectly elastic

3. Importance of Elasticity Calculation

Details: Understanding PED helps businesses set optimal prices, governments predict tax revenue impacts, and economists analyze market behavior.

4. Using the Calculator

Tips: Enter percentage changes as whole numbers or decimals (e.g., 5 for 5% or -2.5 for -2.5%). The denominator (%ΔP) cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What factors affect price elasticity?
A: Availability of substitutes, necessity vs luxury, time horizon, and proportion of income spent on the good.

Q2: Can elasticity be positive?
A: Normally PED is negative (price up, quantity down), but we often use absolute value for interpretation.

Q3: How is this different from income elasticity?
A: Income elasticity measures response to income changes, while PED measures response to price changes.

Q4: What's the difference between arc and point elasticity?
A: This calculator uses point elasticity. Arc elasticity averages elasticity over a price range.

Q5: How do businesses use elasticity information?
A: To predict revenue changes from price adjustments and understand competitive positioning.