<h2>Price Elasticity of Demand</h2>
<p>The <strong>price elasticity of demand (PED)</strong> is a key concept in economics that measures the responsiveness of the quantity demanded of a good or service to changes in its price, holding all other factors constant. It's a crucial tool for traders to understand consumer behavior and market dynamics.</p>

<h2>How It Works</h2>
<p>PED is calculated using the following formula:</p>
<table>
<tbody>
<tr>
<td><strong>PED</strong></td>
<td>=</td>
<td>(% change in quantity demanded) / (% change in price)</td>
</tr>
</tbody>
</table>
<p>Alternatively, it can be expressed as the ratio of the percentage change in quantity demanded to the percentage change in price:</p>
<table>
<tbody>
<tr>
<td><strong>PED</strong></td>
<td>=</td>
<td>(ΔQ / Q) / (ΔP / P)</td>
</tr>
</tbody>
</table>
<p>Where:</p>
<ul>
<li>ΔQ = change in quantity demanded</li>
<li>Q = initial quantity demanded</li>
<li>ΔP = change in price</li>
<li>P = initial price</li>
</ul>
<p>The result can be classified into four categories:</p>
<ul>
<li><strong>Elastic</strong> (PED > 1): A small change in price leads to a large change in quantity demanded.</li>
<li><strong>Inelastic</strong> (0 < PED < 1): A change in price leads to a less than proportional change in quantity demanded.</li>
<li><strong>Unitary Elastic</strong> (PED = 1): A change in price leads to a proportional change in quantity demanded.</li>
<li><strong>Perfectly Inelastic</strong> (PED = 0): Quantity demanded does not change in response to a change in price.</li>
<li><strong>Perfectly Elastic</strong> (PED = ∞): An infinitesimal change in price leads to an infinite change in quantity demanded.</li>
</ul>

<h2>Why It Matters for Traders</h2>
<p>Understanding PED is vital for traders for several reasons:</p>
<ul>
<li>It helps anticipate market reactions to price changes. For instance, if a stock has an elastic demand, a small price increase may lead to a significant drop in sales, affecting the company's revenue and stock price.</li>
<li>It influences trading strategies. For example, traders may use the PED concept to identify arbitrage opportunities or set stop-loss orders based on expected demand changes.</li>
<li>It provides insights into a company's pricing power. A company with inelastic demand for its products can raise prices without significantly affecting sales.</li>
</ul>

<h2>Example</h2>
<p>Consider a trader analyzing the demand for Gold (XAUUSD) on the MetaTrader 5 platform at STB Provider. If a 10% increase in the price of gold leads to only a 5% decrease in its quantity demanded, the PED would be:</p>
<table>
<tbody>
<tr>
<td><strong>PED</strong></td>
<td>=</td>
<td>(-5%) / (10%)</td>
<td>= -0.5</td>
</tr>
</tbody>
</table>
<p>This indicates that the demand for gold is inelastic, meaning a change in price has a less than proportional effect on the quantity demanded.</p>

<h2>Key Takeaways</h2>
<ul>
<li>The price elasticity of demand measures the responsiveness of quantity demanded to changes in price.</li>
<li>PED can be calculated using the formula: PED = (% change in quantity demanded) / (% change in price).</li>
<li>Understanding PED helps traders anticipate market reactions, influence trading strategies, and gain insights into a company's pricing power.</li>
<li>PED can be classified into elastic, inelastic, unitary elastic, perfectly inelastic, and perfectly elastic categories.</li>
</ul>