I have data that I have collected suggests that the prices are more or less constant throughout the month whereas the quantity demanded changes on a day to day basis. Recalling the formula for PED, we can write:

$$PED= {P*\Delta Q \over Q*\Delta P}$$ we can observe that $\Delta P=0$ as I mentioned earlier, giving us $PED=infinity$. However in reality the demand is inelastic. Is there a way to handle this error?

Assumption while measuring the prices: The supply was constant.

These are tuples of the form (Price and Demand)










it does not make sense to use the formula for the elasticity like this.The PED is used for theoretical purposes in static equilibrium analisys. If you want to measure the elasticity empirically, then you must use the correct econometric technique, given your dataset.

One simple way is to run a linear regression (OLS) after a log-transform in your data. The parameter estimated captures de per cent sensibility of you endougeneos variable (demand) to your explicative varible (price).

Don´t forget to check if the parameter statistical significance, you may need more data.


If you don't have any information about how demand behaves when prices vary (because prices haven't varied), then you can't say anything from that data about price elasticity.

Given that you have the current price, you can say something about price elasticity based on information from other sources.

In Bayesian terms, as you have no new information, your posterior is the same as your prior.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.