What is Price Elasticity of Demand?
Price Elasticity of Demand Calculator: Price Elasticity of Demand (PED) measures how much the quantity demanded of a good responds to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. A PED greater than 1 indicates elastic demand, while a value less than 1 indicates inelastic demand.
Calculator
FAQs
1. What is elastic demand?
Elastic demand occurs when the quantity demanded changes significantly due to price changes. If the price rises, consumers significantly reduce their quantity demanded, indicating they can find substitutes or are sensitive to price changes.
2. What is inelastic demand?
Inelastic demand is when quantity demanded changes little in response to price changes. Essential goods like medicine often have inelastic demand because consumers need them regardless of price fluctuations.
3. What factors affect price elasticity?
Factors include the availability of substitutes, the necessity of the product, the time period considered, and consumer preferences. More substitutes typically mean more elastic demand, while necessities tend to be inelastic.
4. How can businesses use PED?
Businesses can use price elasticity to set optimal pricing strategies, forecast sales under different pricing scenarios, and determine the potential impact of price changes on revenue and market share.
5. Can PED change over time?
Yes, price elasticity can change based on various factors like market trends, economic conditions, and consumer preferences. A product may be elastic in one period and inelastic in another due to these shifts.
Related Calculator-