Price Elasticity of Demand Calculator
Calculate price elasticity using the midpoint formula to determine demand sensitivity to price changes
Calculate Price Elasticity of Demand
Initial Price Point
Final Price Point
Please enter all required values with different price points to calculate price elasticity of demand.
Example: TV Store Pricing
Scenario
Product: Television sets
Initial pricing: $800 → 200 units sold per month
New pricing: $700 → 250 units sold per month
Calculation
Quantity change: (250-200)/((250+200)/2) = 50/225 = 0.222
Price change: (700-800)/((700+800)/2) = -100/750 = -0.133
PED = 0.222 / -0.133 = -1.67
Result: Elastic demand - price decrease increases revenue
Elasticity Classification
Pricing Strategy Tips
Elastic products: Lower prices to increase revenue
Inelastic products: Higher prices may increase revenue
Luxury goods: Typically elastic
Necessities: Typically inelastic
Understanding Price Elasticity of Demand
What is Price Elasticity of Demand?
Price elasticity of demand (PED) measures how responsive consumer demand is to changes in price. It helps businesses understand whether they should raise or lower prices to maximize revenue.
Key Factors Affecting Elasticity
- •Availability of substitutes
- •Whether the product is a necessity or luxury
- •Time frame for adjustment
- •Proportion of income spent on the product
Midpoint Formula
PED = [(Q₁-Q₀)/((Q₁+Q₀)/2)] / [(P₁-P₀)/((P₁+P₀)/2)]
- P₀: Initial price
- P₁: Final price
- Q₀: Initial quantity
- Q₁: Final quantity
Why midpoint formula? It gives the same elasticity value regardless of whether price increases or decreases.