Price elasticity of demand is a way to measure the responsiveness to a change in quantity and price of a product or service to assess if it is a good idea or not.
We promise that the formula is not as confusing as the term itself. To find this, you can use the following formula:
Price Elasticity of Demand = % change in quantity demanded / % change in price
Using this formula, you will need to find the difference between these two sets of values. Once you have that, plug and play with the numbers and you will have your answer.
If your answer ends up being more than 1, that can mean a few things:
If your answer ends up being less than 1, that can mean a few things:
You can have a price elastic demand of 1, where the change in price will equal the change in demand. This means if you raise the price by 1%, you can expect to see a 1% drop in demand.
Our free tool is extremely easy to use. This only requires a few steps:
Let's say you own an apple store. At first you were selling 20,000 apples a month for $2 a piece. You decide to test out a new price the next month, making it $2.49 per apple and only sold 14,750 apples in that month. We can use the price elasticity of demand formula to understand this more.
PED = -0.2625 / 0.245 = -1.0714 PED
Since the number is negative we can take its absolute value, making it equal to 1.0714. Since the result is above 1, the demand is deemed elastic, indicating the percent change in demand is slightly greater than the percent change in price.
Yes, if you get a value that is less than 1 then it is inelastic which means despite the change in price, the change in quantity was also rather small.
Create Date: July 12, 2024
Last Modified Date: September 5, 2024