Price Elasticity of Demand Calculator

What Is Price Elasticity of Demand? Price Elasticity of Demand (PED) measures how sensitive quantity demanded is to a change in price. It answers the question: “If price rises by 1%, how much does demand fall?”

Standard PED Formula PED = (% change in Quantity Demanded) / (% change in Price) PED = (ΔQ / Q₁) / (ΔP / P₁)

Midpoint Method (More Accurate) The midpoint method uses average values to avoid different results depending on direction of change: PED = (ΔQ / Q_avg) / (ΔP / P_avg) Where: Q_avg = (Q₁ + Q₂) / 2 and P_avg = (P₁ + P₂) / 2

PED Classifications

• Perfectly inelastic (PED = 0): Quantity does not change at all with price (insulin for diabetics)
• Inelastic (0 < |PED| < 1): Quantity changes less than price change (gasoline, cigarettes)
• Unit elastic (|PED| = 1): Quantity changes by same proportion as price
• Elastic (|PED| > 1): Quantity changes more than price change (luxury goods, flights)
• Perfectly elastic (|PED| = ∞): Any price increase causes demand to drop to zero

Revenue Impact This is where PED becomes extremely valuable for business:

• Elastic demand: raising price DECREASES total revenue
• Inelastic demand: raising price INCREASES total revenue
• Unit elastic: price changes have no effect on revenue

Income Elasticity (YED) YED = % change in Quantity / % change in Income

• YED > 0: Normal good (demand rises with income)
• YED > 1: Luxury good (demand rises faster than income)
• YED < 0: Inferior good (demand falls as income rises: e.g., instant noodles)

Cross-Price Elasticity (XED) XED = % change in Qty of Good A / % change in Price of Good B

• XED > 0: Substitute goods (e.g., butter and margarine)
• XED < 0: Complementary goods (e.g., printers and ink cartridges)
• XED ≈ 0: Unrelated goods