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 shows the percentage change in quantity demanded resulting from a 1% change in price.

2. How Does the Midpoint Formula Work?

The calculator uses the midpoint formula:

Where:

• \( Q_1 \) — Initial quantity demanded
• \( Q_2 \) — New quantity demanded
• \( P_1 \) — Initial price
• \( P_2 \) — New price

Explanation: The midpoint formula calculates percentage changes relative to the average of the initial and new values, avoiding the problem of which value to use as the base.

3. Interpreting the Results

Details:

• |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

4. Using the Calculator

Tips: Enter both quantity values (Q1 and Q2) and both price values (P1 and P2). All values must be non-negative, and the sums (Q1+Q2) and (P1+P2) must be positive.

5. Frequently Asked Questions (FAQ)

Q1: Why use the midpoint formula instead of the standard formula?
A: The midpoint formula gives the same elasticity value whether price rises or falls, avoiding the "directionality problem" of the standard formula.

Q2: What does a negative PED value mean?
A: A negative value is normal and indicates the inverse relationship between price and quantity demanded. We usually interpret the absolute value.

Q3: When is demand considered elastic?
A: Demand is elastic when |PED| > 1, meaning consumers are highly responsive to price changes (common for luxuries and goods with substitutes).

Q4: What are examples of perfectly inelastic demand?
A: Life-saving medications with no substitutes often have nearly perfectly inelastic demand (PED close to 0).

Q5: How does time affect price elasticity?
A: Demand becomes more elastic over time as consumers find alternatives or adjust their consumption habits.