π Price Elasticity of Demand Calculator
How much demand moves when price moves.
Price elasticity of demand (midpoint)
Estimates for planning only, not financial advice.
Price elasticity of demand measures how much quantity sold responds to a price change: the percent change in quantity divided by the percent change in price. Raise price from $10 to $12 and watch sales fall from 1,000 to 800 units: elasticity is negative 1.22, meaning demand is elastic. A 1 percent price hike costs about 1.22 percent of volume. That single number governs pricing strategy.
How to Use This Calculator
Enter the original and new prices with the quantities sold at each. The calculator uses the midpoint formula, which gives the same elasticity whether price rises or falls, and reports revenue before and after so you can see the trade-off directly.
Enter price and quantity before and after a price change. Real transaction data beats surveys.
Read elasticity and the revenue comparison. Elastic means the price move lost revenue; inelastic means it gained.
Use it to set the profit-maximizing price with our optimal price calculator.
The Elasticity Formula (Midpoint)
The midpoint method divides each change by the average of the two values, avoiding the asymmetry of simple percent changes (a rise then fall that does not return to start). Demand elasticity is negative by the law of demand; economists usually discuss its absolute value: above 1 is elastic, below 1 is inelastic.
Worked Example
Price rises from $10 to $12; quantity falls from 1,000 to 800. Percent change in quantity: negative 200 / 900 = negative 22.22 percent. Percent change in price: 2 / 11 = 18.18 percent. Elasticity: negative 22.22 / 18.18 = negative 1.22. Demand is elastic. Revenue fell from $10,000 to $9,600: the price increase destroyed $400 of revenue, confirming the elastic read.
Reading Your Result
Elastic (above 1): cut price to grow revenue, because volume gains outweigh the lower price. Inelastic (below 1): raise price, because volume barely moves. Unit elastic (1.0): revenue is maximized right here; small moves either way roughly hold revenue flat. That last case is the revenue peak, though not necessarily the profit peak.
My rule: elasticity is local, not permanent. It changes along the demand curve and over time as competitors respond and customers adapt. A product inelastic today becomes elastic when a substitute launches. Recompute after every major price change and at least yearly; pricing on a three-year-old elasticity is driving with an old map. For the supply side of the same market, our price elasticity of supply calculator completes the picture.
The revenue test is the field version of elasticity math: raise price 5 percent and watch revenue. If revenue rises, demand was inelastic and you had pricing power; if it falls, you were already near the edge. Software companies run this experiment constantly with tiered plans, while restaurants learn it the hard way with menu reprints. Either way, the market grades your elasticity estimate fast.
Elasticity is not a property of the product alone; it is a property of the product plus the time horizon. Gasoline demand is inelastic this month (you still drive to work) but elastic over five years (you buy the hybrid, move closer, or switch jobs). Always ask "elasticity over what period" before applying a number, because the short-run and long-run answers routinely differ by a factor of two or more.
A final wrinkle: elasticity changes along the demand curve itself. At high prices (low quantity), demand tends to be more elastic; at low prices, more inelastic. That is why the same product can support aggressive premium pricing at the top end while needing discounts to move volume at the bottom. Linear demand curves have this property built in, which is one more reason single-number elasticities deserve a skeptical eye.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is price elasticity of demand?
The percent change in quantity demanded divided by the percent change in price. It measures price sensitivity: an elasticity of -1.22 means a 1% price increase reduces quantity by about 1.22%. Revenue test shortcut: if a price hike raised revenue, demand was inelastic.
How do you calculate elasticity with the midpoint formula?
Divide the change in quantity by the average quantity, then divide by the change in price over the average price. The midpoint method gives consistent results whether price rises or falls. The midpoint formula's virtue: it gives the same elasticity whether price rises or falls.
What is elastic vs inelastic demand?
Elastic (|E| > 1): quantity responds strongly to price, like restaurant meals or luxury goods. Inelastic (|E| < 1): quantity barely moves, like insulin, gasoline short-term, or addictive goods. Unit elastic (|E| = 1) is the boundary. Airlines live this: business travelers are inelastic, tourists elastic, hence fare buckets.
Why is demand elasticity negative?
Because price and quantity move in opposite directions by the law of demand: higher price, lower quantity. Economists often quote the absolute value for convenience, saying 'elasticity of 1.22' when the computed value is -1.22. Economists say 'elasticity of 1.5' meaning |E| = 1.5: the sign is understood.
What makes demand more elastic?
Available substitutes, a large share of the buyer's budget, longer time horizons, and luxury (vs necessity) status. Gasoline is inelastic this week and more elastic over five years as drivers buy efficient cars. Salt is the classic inelastic good: tiny budget share, no substitutes.
How does elasticity affect total revenue?
If demand is elastic, raising price lowers revenue; if inelastic, raising price raises revenue. Revenue peaks at unit elasticity. But profit peaks where marginal revenue equals marginal cost, which accounts for cost savings on unsold units too. A monopolist always prices where demand is elastic: inelastic pricing leaves money on the table.
What is the difference between short-run and long-run elasticity?
Long-run elasticity is larger in absolute value: consumers need time to adjust habits, find substitutes, and replace durables. Pricing decisions should use the horizon's elasticity, not a textbook single number. Habit formation makes short-run elasticity low: addiction is inelasticity with a story.
Can elasticity be zero or infinite?
Perfectly inelastic (zero) means quantity never changes with price, approximated by life-saving drugs short-term. Perfectly elastic (infinite) means any price rise kills all sales, approximated by commodities in perfect competition. Real products sit between. Diamonds approximate inelasticity for bridal buyers: emotion overrides price signals.
How do businesses estimate elasticity?
From price experiments (A/B tests across markets), historical price-quantity data with controls for seasonality and promotions, conjoint surveys, and competitor analysis. Clean experiments beat any formula applied to messy data. Natural experiments (a competitor's outage, a tax change) give the cleanest elasticity reads.
Does elasticity differ across customer segments?
Almost always. Price-sensitive segments show high elasticity; premium segments show low. This is why tiered pricing and versioning work: each segment gets a price near its own elasticity, raising total profit. Student discounts and senior pricing are elasticity segmentation in plain sight.