function calculatePED() {
var p1 = parseFloat(document.getElementById('initialPrice').value);
var p2 = parseFloat(document.getElementById('newPrice').value);
var q1 = parseFloat(document.getElementById('initialQty').value);
var q2 = parseFloat(document.getElementById('newQty').value);
if (isNaN(p1) || isNaN(p2) || isNaN(q1) || isNaN(q2) || p1 === p2 || (q1 + q2) === 0) {
alert("Please enter valid numerical values. Price cannot be identical to avoid division by zero.");
return;
}
// Using the Midpoint Method (Arc Elasticity) for higher accuracy
var qChange = q2 – q1;
var qAvg = (q1 + q2) / 2;
var pChange = p2 – p1;
var pAvg = (p1 + p2) / 2;
var percentageChangeQty = qChange / qAvg;
var percentageChangePrice = pChange / pAvg;
var ped = Math.abs(percentageChangeQty / percentageChangePrice);
var pedDisplay = document.getElementById('pedResult');
var valText = document.getElementById('pedValue');
var interpText = document.getElementById('pedInterpretation');
var formulaText = document.getElementById('pedFormulaDetails');
pedDisplay.style.display = 'block';
valText.innerHTML = "PED Coefficient: " + ped.toFixed(4);
var interpretation = "";
var color = "";
if (ped > 1) {
interpretation = "Relatively Elastic: Demand is sensitive to price changes. Total revenue will likely decrease if you raise prices.";
color = "#e67e22";
} else if (ped 0) {
interpretation = "Relatively Inelastic: Demand is less sensitive to price changes. Total revenue will likely increase if you raise prices.";
color = "#2980b9";
} else if (ped === 1) {
interpretation = "Unitary Elastic: Percentage change in quantity equals percentage change in price.";
color = "#27ae60";
} else if (ped === 0) {
interpretation = "Perfectly Inelastic: Demand does not change regardless of price.";
color = "#7f8c8d";
} else {
interpretation = "Perfectly Elastic: Any price increase causes demand to drop to zero.";
color = "#c0392b";
}
interpText.innerHTML = interpretation;
interpText.style.color = color;
pedDisplay.style.borderLeftColor = color;
formulaText.innerHTML = "Calculated using the Midpoint Method: [(Q2-Q1)/Avg Q] / [(P2-P1)/Avg P]";
}
How to Calculate Price Elasticity of Demand (PED)
Price Elasticity of Demand (PED) is a critical economic metric used to measure how much the quantity demanded of a product changes in response to a change in its price. Understanding PED helps businesses set pricing strategies and predict revenue fluctuations.
The PED Formula (Midpoint Method)
While there are multiple ways to calculate elasticity, economists generally prefer the Midpoint Method (also known as Arc Elasticity) because it provides the same result regardless of whether the price increases or decreases. The formula is:
Elastic (PED > 1): Consumers are highly sensitive to price. If price goes up by 10%, quantity demanded drops by more than 10%. Examples include luxury goods and brands with many substitutes.
Inelastic (PED < 1): Consumers are less sensitive to price. If price goes up by 10%, demand drops by less than 10%. Examples include gasoline, life-saving medication, and addictive goods.
Unitary Elastic (PED = 1): The percentage change in quantity is exactly equal to the percentage change in price.
Practical Example
Imagine a coffee shop owner currently sells 200 cups of coffee per day at $4.00 per cup. They decide to raise the price to $5.00. As a result, the daily sales drop to 150 cups.
Initial State: P1 = 4, Q1 = 200
New State: P2 = 5, Q2 = 150
% Change in Quantity: (150 – 200) / 175 = -28.57%
% Change in Price: (5 – 4) / 4.5 = +22.22%
PED: 28.57 / 22.22 = 1.28
Since 1.28 is greater than 1, the demand for this coffee is Elastic. The price increase caused a proportionately larger drop in sales, meaning the owner might actually see a decrease in total revenue.
Factors Influencing PED
Why are some products more elastic than others? Key factors include:
Availability of Substitutes: If there are many alternatives, consumers will switch easily (Elastic).
Necessity vs. Luxury: Necessities like water are Inelastic; vacations are Elastic.
Proportion of Income: Expensive items (cars) are usually more elastic than cheap items (salt).
Time Period: Demand becomes more elastic over time as consumers find alternatives.