Price Elasticity of Demand Calculator

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Price Elasticity of Demand (PED) Calculator

Results:

Price Elasticity Coefficient: 0

Demand Type: –

function calculatePED() { var p1 = parseFloat(document.getElementById('p1').value); var p2 = parseFloat(document.getElementById('p2').value); var q1 = parseFloat(document.getElementById('q1').value); var q2 = parseFloat(document.getElementById('q2').value); if (isNaN(p1) || isNaN(p2) || isNaN(q1) || isNaN(q2)) { alert("Please fill in all fields with valid numbers."); return; } if (p1 === p2 || q1 + q2 === 0 || p1 + p2 === 0) { alert("Please ensure price and quantity values allow for calculation."); return; } // Using the Midpoint (Arc) Formula var qChange = q2 – q1; var qAverage = (q1 + q2) / 2; var pChange = p2 – p1; var pAverage = (p1 + p2) / 2; var ped = (qChange / qAverage) / (pChange / pAverage); var absolutePed = Math.abs(ped); var type = ""; var explanation = ""; if (absolutePed > 1) { type = "Elastic Demand"; explanation = "A change in price results in a proportionally larger change in the quantity demanded. Consumers are sensitive to price changes."; } else if (absolutePed 0) { type = "Inelastic Demand"; explanation = "A change in price results in a proportionally smaller change in the quantity demanded. Consumers are not very sensitive to price changes."; } else if (absolutePed === 1) { type = "Unitary Elastic Demand"; explanation = "The change in quantity demanded is exactly proportional to the change in price."; } else if (absolutePed === 0) { type = "Perfectly Inelastic"; explanation = "Quantity demanded does not change regardless of price changes."; } document.getElementById('ped-coefficient').innerText = ped.toFixed(4); document.getElementById('ped-type').innerText = type; document.getElementById('ped-explanation').innerText = explanation; document.getElementById('ped-result-box').style.display = "block"; }

What is Price Elasticity of Demand?

Price Elasticity of Demand (PED) is a fundamental economic metric used to measure how sensitive the quantity demanded of a good or service is to a change in its price. Understanding PED helps businesses and economists predict how sales volumes will shift when price adjustments occur.

The Midpoint Formula

This calculator uses the Midpoint Method (also known as the Arc Elasticity), which is the standard formula for calculating elasticity between two points. It ensures that the percentage change is consistent whether the price increases or decreases.

PED = [(Q2 – Q1) / ((Q1 + Q2) / 2)] / [(P2 – P1) / ((P2 + P1) / 2)]

Interpreting the Results

  • Elastic (|PED| > 1): Luxury goods and items with many substitutes (like a specific brand of coffee) are usually elastic. A small price hike leads to a large drop in demand.
  • Inelastic (|PED| < 1): Necessities like medicine, gasoline, or salt are typically inelastic. People continue to buy them even if the price goes up.
  • Unitary Elastic (|PED| = 1): Total revenue remains the same when prices change because the percentage change in quantity matches the percentage change in price.

Real-World Example

Imagine a movie theater currently sells tickets for $10 (P1) and attracts 500 customers (Q1) per day. If they raise the price to $12 (P2) and the attendance drops to 400 customers (Q2), the calculation would be:

  • Quantity Change: -100 / 450 = -0.2222
  • Price Change: 2 / 11 = 0.1818
  • PED = -1.22

Since the absolute value (1.22) is greater than 1, the demand for these movie tickets is Elastic. The theater might actually lose total revenue by raising the price because the drop in customers outweighs the extra profit per ticket.

Why Businesses Use This Calculator

A business owner uses price elasticity to determine their Pricing Strategy. If your product is highly inelastic, you can raise prices to increase revenue without losing many customers. If your product is highly elastic, lowering prices slightly might trigger a massive surge in sales, leading to higher overall profits.

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