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:

• \( dQ/dP \) — Derivative of quantity with respect to price (unitless)
• \( P \) — Price of the good (USD)
• \( Q \) — Quantity demanded at price P

Explanation: The formula calculates the percentage change in quantity demanded divided by the percentage change in price at a specific point on the demand curve.

3. Interpretation of PED Values

Details:

• PED < -1: Elastic demand (quantity responds strongly to price changes)
• -1 < PED < 0: Inelastic demand (quantity responds weakly to price changes)
• PED = -1: Unit elastic demand
• PED = 0: Perfectly inelastic demand
• PED = -∞: Perfectly elastic demand

4. Using the Calculator

Tips: Enter the derivative dQ/dP (from your demand function), current price, and current quantity. All values must be valid (quantity ≠ 0).

5. Frequently Asked Questions (FAQ)

Q1: Why is PED usually negative?
A: Because price and quantity demanded typically move in opposite directions (law of demand).

Q2: What's the difference between point and arc elasticity?
A: This calculator finds point elasticity. Arc elasticity measures elasticity between two points on the demand curve.

Q3: How do I find dQ/dP from a demand equation?
A: Take the derivative of your demand function with respect to price. For Q = a - bP, dQ/dP = -b.

Q4: What factors affect PED?
A: Availability of substitutes, necessity vs luxury, time horizon, and proportion of income spent on the good.

Q5: How do businesses use PED?
A: For pricing strategies, revenue prediction, and understanding market competition.