Price Elasticity of Demand (PED) Measure

A Price Elasticity of Demand (PED) Measure is a demand elasticity measure that quantifies the percentage responsiveness of quantity demanded to a percentage change in price (with all other factors held ceteris paribus).

• AKA: Price Sensitivity, Price Elasticity of Demand, PED, Elasticity of Demand, Price Elasticity, Price Sensitivity Measure, Price Elasticity Demand, Product Demand Elasticity, Elasticity of Demand Measure, PED Measure.
• Context:
  • It can typically produce Price Elasticity of Demand Values (which can range from typically being a negative price elasticity to being a positive price elasticity).
  • It can typically measure Demand Price Responsiveness through PED calculation methods comparing demand quantity changes to price changes.
  • It can typically inform Price Determination Tasks via PED-based pricing strategys and PED revenue optimization.
  • It can typically support Pricing Models through PED parameter estimations and PED market analysis.
  • It can typically interact with Supply-and-Demand (S&D) Law determining market equilibrium adjustments.
  • ...
  • It can often guide Price Elasticity Modeling through PED econometric analysis and PED forecasting models.
  • It can often vary across Product Categorys distinguishing elastic good demands from inelastic good demands.
  • It can often influence Tax Incidence Analysis via PED comparisons with supply elasticity.
  • It can often support Marketing Research through PED consumer behavior studys and PED market segmentation.
  • It can often enable Event Study analysis measuring PED price shock impacts.
  • ...
  • It can range from being a Short-Run PED to being a Long-Run PED, depending on its demand adjustment period.
  • It can range from being a Point PED Measure to being an Arc PED Measure, depending on its demand calculation method.
  • It can range from being a Personalized PED Measure to being a Market-Level PED Measure, depending on its demand aggregation level.
  • It can range from being a Perfectly Inelastic Demand to being a Perfectly Elastic Demand, depending on its demand responsiveness magnitude.
  • ...
  • 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 Price Elasticity of Demand (PED) Systems solving PED estimation tasks.
  • It can be interpreted using Elasticity Scores categorizing demand responsiveness levels.
  • It can be applied in Price Optimization maximizing revenue objective functions.
  • It can be integrated with Demand Curve analysis showing price-quantity relationships.
  • ...
• Examples:
  • Product-Specific PED Measures, such as:
    • Necessity Good PED Measures showing low price elasticity, such as:
      • Gasoline PED Measure typically ranging from -0.2 to -0.5.
      • Basic Food PED Measure demonstrating price inelastic demand.
      • Medical Service PED Measure exhibiting low price sensitivity.
    • Luxury Good PED Measures showing high price elasticity, such as:
      • Entertainment Service PED Measure with values exceeding -1.0.
      • Jewelry PED Measure demonstrating price elastic demand.
      • Tourism Service PED Measure showing high price sensitivity.
  • Market-Specific PED Measures, such as:
    • Labor Market PED Measures, such as:
      • Wage Elasticity of Labor Demand Measure quantifying labor demand wage responsiveness.
      • Minimum Wage PED measuring employment price sensitivity.
    • Financial Market PED Measures, such as:
      • Interest Rate Elasticity of Bond Demand tracking bond price sensitivity.
      • Stock Price Elasticity of Trading Volume measuring market liquidity response.
  • Time-Horizon PED Measures, such as:
    • Immediate PED Measures capturing instantaneous demand response.
    • Monthly PED Measures showing short-term adjustment patterns.
    • Annual PED Measures revealing long-term demand adaptation.
  • Special Case PED Measures, such as:
    • Positive Price Elasticity of Demand for Veblen goods and Giffen goods.
    • Unit Elastic Demand where PED equals exactly -1.0.
    • Perfectly Inelastic Demand where PED equals 0.
  • Personalized PED Measures for individual consumer behavior.
  • Aggregate PED Measures for market-level demand analysis.
  • ...
• Counter-Examples:
  • Price Elasticity of Supply Measure, which measures producer response to price change rather than consumer response.
  • Cross-Price Elasticity of Demand Measure, which measures response to other product price rather than own price.
  • Income Elasticity of Demand Measure, which measures response to income change rather than price change.
  • Capital and Labor Substitution Elasticity Measure, which measures factor substitution rather than demand response.
  • Residual Demand Curve, which represents firm-specific demand rather than market demand elasticity.
• See: Demand Elasticity Measure, Elasticity Measure, Item Price, Item Supply, Item Demand, Price Elasticity Model, Price Optimization, Ceteris Paribus, Law of Demand, Incidence of Tax, Marketing Research, Event Study, Demand Curve, Microeconomic Theory, Supply Curve, Economic Demand Effect.

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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.

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