Price Elasticity of Demand Calculator
:root {
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–success-green: #28a745;
–light-background: #f8f9fa;
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color: var(–text-color);
background-color: var(–light-background);
margin: 0;
padding: 20px;
display: flex;
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align-items: flex-start; /* Align to the top */
min-height: 100vh;
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/* Responsive adjustments */
@media (max-width: 600px) {
.loan-calc-container {
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h1 {
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button {
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}
Price Elasticity of Demand Calculator
Understanding Price Elasticity of Demand (PED)
Price Elasticity of Demand (PED) is a fundamental economic concept that measures how sensitive the quantity demanded of a good or service is to a change in its price. In simpler terms, it tells us how much demand will change if the price goes up or down.
The formula for calculating the Price Elasticity of Demand is:
PED = (% Change in Quantity Demanded) / (% Change in Price)
To calculate these percentage changes, we typically use the midpoint method (also known as the arc elasticity formula) to ensure symmetry regardless of whether the price increases or decreases. The formulas are:
-
% Change in Quantity Demanded = [(Q2 – Q1) / ((Q1 + Q2) / 2)] * 100
-
% Change in Price = [(P2 – P1) / ((P1 + P2) / 2)] * 100
Where:
- Q1 = Initial Quantity Demanded
- Q2 = Final Quantity Demanded
- P1 = Initial Price
- P2 = Final Price
Substituting these into the PED formula and simplifying, we get:
PED = [(Q2 – Q1) / ((Q1 + Q2) / 2)] / [(P2 – P1) / ((P1 + P2) / 2)]
The absolute value of the PED result indicates the degree of elasticity:
-
|PED| > 1: Elastic demand. A price change leads to a proportionally larger change in quantity demanded. Consumers are sensitive to price.
-
|PED| < 1: Inelastic demand. A price change leads to a proportionally smaller change in quantity demanded. Consumers are not very sensitive to price.
-
|PED| = 1: Unitary elasticity. A price change leads to an exactly proportional change in quantity demanded.
-
|PED| = 0: Perfectly inelastic. Quantity demanded does not change regardless of price. (Rare in practice).
-
|PED| = ∞: Perfectly elastic. Any price increase causes demand to drop to zero. (Rare in practice).
Understanding PED is crucial for businesses when making pricing decisions, as it impacts total revenue. For example, if demand is elastic, lowering the price might increase total revenue, while raising the price would decrease it. Conversely, if demand is inelastic, raising the price could increase total revenue.
function calculateElasticity() {
var initialQuantity = parseFloat(document.getElementById("initialQuantity").value);
var finalQuantity = parseFloat(document.getElementById("finalQuantity").value);
var initialPrice = parseFloat(document.getElementById("initialPrice").value);
var finalPrice = parseFloat(document.getElementById("finalPrice").value);
var resultDiv = document.getElementById("result");
resultDiv.style.display = 'block';
if (isNaN(initialQuantity) || isNaN(finalQuantity) || isNaN(initialPrice) || isNaN(finalPrice)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
resultDiv.style.backgroundColor = "#dc3545"; /* Red for error */
return;
}
if (initialQuantity < 0 || finalQuantity < 0 || initialPrice < 0 || finalPrice 1) {
elasticityType = "Elastic Demand";
} else if (absPed < 1) {
elasticityType = "Inelastic Demand";
} else if (absPed === 1) {
elasticityType = "Unitary Elastic Demand";
} else if (absPed === 0) {
elasticityType = "Perfectly Inelastic Demand";
} else if (ped === Infinity) {
elasticityType = "Perfectly Elastic Demand (if quantity changed)";
}
resultDiv.innerHTML =
`${ped.toFixed(3)}
(${elasticityType})`;
resultDiv.style.backgroundColor = "var(–success-green)"; /* Reset to success green */
}