Price Elasticity of Demand (PED) Measure

A Price Elasticity of Demand (PED) Measure is a elasticity measure for sensitivity of the change in quantity demanded in response to a (one percent) price change (with all other factors held as equal).

• AKA: Price Sensitivity.
• Context:
  • It can produce a Price Elasticity of Demand Value (which can range from typically being a negative price elasticity to being a positive price elasticity)
  • It can be expressed as [math]\displaystyle{ E_d = \frac{\%\ \mbox{change in quantity demanded}}{\%\ \mbox{change in price}} = \frac{\% \Delta Q}{\% \Delta P} = \frac{\Delta Q_d/Q_d}{\Delta P/P} }[/math].
  • It can be produced by a Price Elasticity of Demand (PED) System (solving a PED estimation task).
  • It can range from being a Short-Run PED to being a Long-Run PED.
  • It can be a Personalized PED Measure.
  • …
• Example(s):
  • a Labor Wage Elasticity of Demand Measure.
  • …
• Counter-Example(s):
  • a Price Elasticity of Supply, such as a price elasticity of labor supply.
  • a Cross Price Elasticity of Demand Measure, [math]\displaystyle{ \frac{\% \Delta Q (\text{item} \ a)}{\% \Delta P (\text{item} \ b)} }[/math]
  • a Capital and Labor Substitution Elasticity Measure.
  • an Income Elasticity of Demand.
  • a Residual Demand Curve.
• See: Item Price, Item Supply, Item Demand, Price Elasticity Model, Price Optimization, Ceteris Paribus, Law of Demand, Incidence of Tax, Marketing Research, Event Study.

---

---

References

2018

• (Wikipedia, 2018) ⇒ https://en.wikipedia.org/wiki/Price_elasticity_of_demand Retrieved:2018-2-13.
  • Price elasticity of demand (PED or E_d) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price when nothing but the price changes. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price.

    Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to ambiguity. Only goods which do not conform to the law of demand, such as Veblen and Giffen goods, have a positive PED. In general, the demand for a good is said to be inelastic (or relatively inelastic) when the PED is less than one (in absolute value): that is, changes in price have a relatively small effect on the quantity of the good demanded. The demand for a good is said to be elastic (or relatively elastic) when its PED is greater than one (in absolute value): that is, changes in price have a relatively large effect on the quantity of a good demanded. Demand for a good is: : [math]\displaystyle{ e_{\langle p \rangle} = \frac{\mathrm{d} Q/Q}{\mathrm{d} P/P} }[/math] Revenue is maximized when price is set so that the PED is exactly one. The PED of a good can also be used to predict the incidence (or "burden") of a tax on that good. Various research methods are used to determine price elasticity, including test markets, analysis of historical sales data and conjoint analysis.

2014

• http://en.wikipedia.org/wiki/Elasticity_%28economics%29#Elasticities_of_demand
  • Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price (ceteris paribus, i.e. holding constant all the other determinants of demand, such as income).

2012

• http://www.investopedia.com/terms/p/priceelasticity.asp
  • QUOTE: A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price elasticity of demand is a term in economics often used when discussing price sensitivity. The formula for calculating price elasticity of demand is:
    Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

    If a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes). Conversely, a product is inelastic if a large change in price is accompanied by a small amount of change in quantity demanded.

---