Price Elasticity of Demand Calculator
Measure how sensitive consumer demand is to price changes with our price elasticity calculator. Enter original and new prices and quantities to calculate the elasticity coefficient using the midpoint method, and see the impact on revenue.
Price Elasticity of Demand (PED) measures how much the quantity demanded of a good changes when its price changes. This calculator uses the midpoint (arc elasticity) method: PED = (%Change in Quantity) / (%Change in Price), where percentage changes are calculated using the average of the two values as the base. This method gives the same result regardless of the direction of the price change.
When the absolute value of PED is greater than 1, demand is elastic: consumers are highly responsive to price changes, and a price increase will reduce total revenue. When PED is less than 1, demand is inelastic: consumers are less responsive, and a price increase will increase total revenue. At exactly 1 (unit elastic), total revenue remains unchanged.
Understanding elasticity is crucial for pricing strategy. Luxury goods, products with many substitutes, and non-essential items tend to have elastic demand. Necessities, addictive products, and items with few substitutes tend to have inelastic demand. Businesses can maximize revenue by raising prices on inelastic products and lowering prices on elastic products to gain volume.