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Elasticity of Demand Calculator + Online Solver With Free Steps
The Elasticity of Demand Calculator is used to calculate the Price Elasticity of Demand PED of supplied or demanded goods. The goods or products are consumed by the consumer and supplied by the producer. The PED is the same for the consumer or producer.
Elasticity is the measure of how much the material can retain its shape after the deforming forces are applied to it.
The Price Elasticity of Demand determines how much the quantity demand of a product in the marketplace is affected by changing the price of the demanded product.
It shows that does the price change have or does not have a change in the demand for the product in the market.
The formula for Price Elasticity of Demand used by the calculator is as follows:
\[ PED = \frac{ \frac{ Q_1 \ – \ Q_2 }{ Q_1 } }{ \frac{ P_1 \ – \ P_2 }{ P_1 } } \]
Where Q1 is the original quantity demand and Q2 is the new quantity demand of the consumer or producer. Also, P1 is the original price of the product and P2 is the new price.
The value of PED is taken as an absolute value. The negative sign suggests that the demand is inelastic.
The quantity demand usually decreases when the price of the product goes higher.
What Is an Elasticity of Demand Calculator?
The Elasticity of Demand Calculator is an online tool that is used to compute the Price Elasticity of Demand of a product by taking the original quantity, new quantity, original price, and new price as input parameters.
The value of PED can be categorized into five types. The demands can be elastic, inelastic, perfectly elastic, perfectly inelastic, and unitary elastic depending upon the value of PED.
If PED>1 , the quantity demand is elastic. This means that a small price change will highly impact the demand from the customer.
If PED<1, the demand is price inelastic. This means that a large change in price will have a negligible or less effect on the demand chain.
If PED=1, the demand is unitary elastic. It shows that the ratio of the change in price with the change in the quantity will be the same.
If the value of PED is infinite, the demand is perfectly elastic. This means that quantity demand is changing with no change in price. This type is considered theoretical.
If PED=0, the demand is perfectly inelastic. It means that there is no effect on the demand even if the price is changing.
How To Use the Elasticity of Demand Calculator
The user can use the Elasticity of Demand Calculator by following the steps given below.
Step 1
The user must first enter the old quantity demand in the input window of the calculator. It should be entered in the block labeled, “Original Quantity”.
For the default example, the original quantity demand is 5 units.
Step 2
The user must now enter the new quantity demand in the market after changing the price of the product. It should be entered against the block titled, “New Quantity” in the input tab of the calculator.
The new quantity demand for the product is 10 units in the default example of the calculator.
Step 3
The old price of the product should be entered in the block labeled, “Original Price” of the calculator’s input window. This is the price on which the producer was selling to the consumer before changing it.
For the default example, the original price of the product is 300. The currency is not specified as the ratio of price in the denominator cancels the unit.
Step 4
The user must now enter the changed price of the product in the block labeled, “New Price” in the input window. This price change determines the change in the quantity demand of the product.
The default example shows the new price to be 200.
Step 5
The user must now press the “Submit” button for the calculator to process the four parameters entered by the user.
Output
The calculator computes the Price Elasticity of Demand PED and displays the output in the following two windows.
Input
The calculator shows the Input Interpretation in this output window. It shows the mathematical formula for PED by putting the values of the original quantity, new quantity, original price, and new price of the product in it.
The formula for PED is:
\[ PED = \frac{ \frac{ Q_1 \ – \ Q_2 }{ Q_1 } }{ \frac{ P_1 \ – \ P_2 }{ P_1 } } \]
For the default example, the values for the four parameters are:
Original Quantity = Q1 = 5
New Quantity = Q2 = 10
Original Price = P1 = 300
New Price = P2 = 200
Putting the above values in the Price Elasticity of Demand Equation gives:
\[ PED = \frac{ \frac{ 5 \ – \ 10 }{ 5 } }{ \frac{ 300 \ – \ 200 }{ 300 } } \]
The calculator shows the above equation in its Input window.
Result
The calculator computes the Price Elasticity of Demand PED and shows the result in this window. By using the formula, the Price Elasticity of Demand for the default example comes out to be:
PED = 3
Notice that the formula gives -3 but the calculator takes the absolute value 3 as the PED is taken positive. The negative sign indicates the price inelasticity of the product.
Solved Example
The following example is solved through the Elasticity of Demand Calculator.
Example 1
A car company sold 5000 cars in the year 2006 and sells the car for 20,000 dollars. In the next year, the company decreased the price to 16,000 dollars.
The quantity demanded increased to 5500 cars. Calculate the Price Elasticity of Demand for the cars sold and analyze the type of PED.
Solution
The user must first enter the original quantity, new quantity, original price, and new price of the car as specified in the example. The values are given as follows:
Original Quantity = Q1 = 5000
New Quantity = Q2 = 5500
Original Price = P1 = 20000
New Price = P2 = 16000
The user must now press “Submit” for the calculator to compute the Price Elasticity of Demand PED for the cars sold. The formula is given by:
\[ PED = \frac{ \frac{ Q_1 \ – \ Q_2 }{ Q_1 } }{ \frac{ P_1 \ – \ P_2 }{ P_1 } } \]
By putting the values of Q1, Q2, P1, and P2 in the formula gives:
\[ PED = \frac{ \frac{ 5000 \ – \ 5500 }{ 5000 } }{ \frac{ 20000 \ – \ 16000 }{ 20000 } } \]
\[ PED = \frac{-1}{2} \]
As the value of PED is less than 1 or negative, the quantity demand is price inelastic.
The Price Elasticity of Demand is the absolute value so the calculator shows the value of PED in the Result window as:
\[ PED = \frac{1}{2} \]