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 PED formula:

Where:

• \( \Delta Q \) — Change in quantity demanded
• \( Q \) — Initial quantity demanded
• \( \Delta P \) — Change in price
• \( P \) — Initial price

Interpretation:

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

3. Importance of PED 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 initial and new quantities and prices. The calculator will determine the percentage changes and compute PED. All values must be positive.

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: What does negative PED mean?
A: Negative PED is normal - it shows the inverse relationship between price and quantity demanded. We typically consider absolute values.

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

Q4: Can PED change over time?
A: Yes, demand often becomes more elastic over time as consumers find alternatives.

Q5: What are real-world examples of elastic/inelastic goods?
A: Gasoline is typically inelastic, while restaurant meals are usually elastic.