The Price Elasticity of Demand (Volume Units) calculator computes the Price Elasticity of Demand using the mid-point method where the quantity points are measured by volume units such as cubic yards or meters, gallons, liters and more.
INSTRUCTIONS: Choose units and enter the following:
- (P1) - Price Point 1
- (Q1) - Volume Quantity Point 1
- (P2) - Price Point 2
- (Q2) - Volume Quantity Point 2
Price Elasticity of Demand: The calculator will compute Price Elasticity of Demand using the Midpoint Method. Note: the price points can have different currencies. The default is U.S. dollars (USD). However the user can use other currency units via the pull-down menu next to the input field.
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The Math / Science
The formula for Midpoint Method of Price Elasticity of Demand is:
`PED = ((Q_2 - Q_1) ÷ (Q_2 + Q_1)"/"2) / ((P_2 - P_1) ÷ (P_2 + P_1)"/"2)`
where:
- PED is the Price Elasticity of Demand
- P1 this is the first price point
- P2 this is the second price point
- Q1 is the quantity point associated with the first price point (P1)
- Q2 is the quantity point associated with the second price point (P2)
Price Elasticity of Demand
Price Elasticity of Demand refers to the phenomenon that is observed where prices do not perfectly conform to the law of supply and demand. If they did, any increase in quantity would necessarily produce a drop in price. In a similar vein, a lowering in price would increase demand. This phenomenon is cause by the fact that consumption is not only driven by need to consume a specific product. In some cases, substitutes can be found. For example, in transportation, the cost to commute via an automobile can be come time and cost prohibitive. In which case, public transportation may act as a substitute. Furthermore, some products are not needed at all, but fall in the category of luxuries. Even small items like an ice-cream cone can be reasonably considered as luxuries since one can live with out it.
These and related factors make the relationship between quantity of a product on the market and its price elastic. That means that there can be some stretching in values before movement is made in related parameters. The question then is this: how does one measure the elasticity of demand? For this purpose, the formula in this calculator has been developed and widely adopted to produce a ratio of the percentages of changes based on their mid-points. Note that the Price Elasticity of Demand can be both positive and negative.
Resource:
- Mankiw, N. Gregory. "Chapter 5:The Elasticity of Demand." Principles of Microeconomics. 6th ed. Mason, OH: Thomson/South-Western, 2004. 90-92. Print.
- “Chapter 7 Consumer Choice and Elasticity.” Microeconomics: Private and Public Choice, by James D. Gwartney et al., Cengage Learning, 2018.