Price Elasticity of Demand Calculator
Enter the old and new price and quantity to measure how sensitive demand is to price. The default example gives an elasticity of -0.7.
How the price elasticity of demand calculator works
Price elasticity of demand measures how much the quantity people buy changes when the price changes. If a small price rise causes a big drop in sales, demand is elastic. If sales barely move, demand is inelastic. Knowing which you have helps with decisions about raising prices, running discounts and forecasting revenue.
This calculator uses the midpoint method, also called arc elasticity. Instead of measuring each change against the starting value, it measures against the average of the old and new values. The big advantage is that you get the same answer whether you move from the old price to the new one or the reverse.
The formulas
Example: A product priced at $10 sells 1,000 units. After the price goes to $12 it sells 880. The midpoint change in quantity is -12.77% and the midpoint change in price is 18.18%, so elasticity is -0.7. Demand is: Inelastic (quantity reacts weakly to price). Revenue changes by $560.00. These are illustration numbers, not market data.
Interpreting the number
Because a price rise normally lowers sales, the raw result is negative, and many people quote the absolute value. An absolute value above 1 is elastic, below 1 is inelastic, and exactly 1 is unit elastic. When demand is inelastic, raising the price usually raises revenue. When it is elastic, a price rise usually lowers revenue.
Limits
The figure describes one price move over one period. Seasonality, competitors, promotions and stock shortages can also change quantity, so the measured elasticity may not come from price alone. Use it as a guide, not a forecast. If you are setting prices, pair it with the margin calculator so a price change still leaves the profit you need.
Keep the units consistent: the same currency for both prices and the same unit of quantity, such as items per month, for both quantities. If your price did not change, the calculator cannot compute elasticity and shows n/a, since the percentage change in price is zero.
Why the midpoint method
The simple percentage method gives different answers depending on direction. A move from $10 to $12 is a 20 percent rise, but a move from $12 to $10 is only a 16.7 percent fall. The midpoint method removes that gap by using the same average base both ways. It works best for changes that are not huge. For very large changes, the average price and quantity may not describe either end well, and you may need data from several price points to see the real demand curve.
Free pricing tips for your business
Get short, practical tips on pricing jobs and using our free calculators. No spam, unsubscribe any time.
Frequently asked questions
What is the midpoint method?
It calculates percent changes using the average of the starting and ending values, so the elasticity is the same whichever direction the change goes.
Why is price elasticity usually negative?
Price and quantity demanded normally move in opposite directions. Many references quote the absolute value, which is -0.7 here with its sign removed.
What is the difference between elastic and inelastic demand?
Elastic means quantity changes by a larger percentage than price. Inelastic means it changes by a smaller percentage.
How does elasticity affect revenue?
If demand is inelastic, a price increase tends to raise revenue. If it is elastic, a price increase tends to reduce it.
Need a custom calculator or spreadsheet built for your business?
Talk to usMore free tools: All free calculators · Margin calculator · Discount calculator · Small business pricing calculator