Calculate price elasticity of demand (PED) using the midpoint method. Determine if your product is elastic or inelastic and see how price changes affect revenue, quantity sold, and total profit.
Price elasticity of demand (PED) measures how sensitive customer demand is to price changes. If a 10% price increase causes a 20% sales drop, your PED is −2.0, meaning demand is highly elastic. If the same increase only causes a 2% drop, PED is −0.2 — demand is inelastic, and the price increase boosts total revenue.
Understanding PED is critical for pricing strategy. This calculator uses the midpoint (arc elasticity) method to compute PED from two price-quantity pairs. It classifies your demand as elastic, inelastic, or unit elastic, then shows the revenue and profit impact so you can make informed pricing decisions.
Entrepreneurs, finance teams, and small-business owners gain a competitive edge from accurate price elasticity of demand data when setting prices, forecasting revenue, or managing operational costs. Save this tool and revisit it each quarter to keep your financial plans aligned with current market realities.
From solo freelancers to mid-market companies, having reliable price elasticity of demand data supports stronger negotiations, tighter forecasting, and more confident strategic planning. Modify the inputs above to match your current business conditions and re-run the numbers as often as your market shifts.
From solo freelancers to mid-market companies, having reliable price elasticity of demand data supports stronger negotiations, tighter forecasting, and more confident strategic planning. Modify the inputs above to match your current business conditions and re-run the numbers as often as your market shifts.
Guessing at price changes is risky. This calculator quantifies how customers will respond so you can predict whether a price increase will boost or hurt total revenue. It's the foundation of data-driven pricing and revenue optimization. Instant recalculation lets you test different assumptions side by side, giving you the confidence to act on data rather than gut instinct.
PED = (%Δ Quantity) / (%Δ Price) using the midpoint method. %Δ Quantity = (Q2 − Q1) / ((Q1 + Q2) / 2) × 100. %Δ Price = (P2 − P1) / ((P1 + P2) / 2) × 100. |PED| > 1 = elastic, |PED| < 1 = inelastic, |PED| = 1 = unit elastic.
Result: PED = −0.90 (inelastic)
%ΔQ = (800 − 1000) / 900 × 100 = −22.2%. %ΔP = (25 − 20) / 22.5 × 100 = +22.2%. PED = −22.2% / 22.2% = −1.0. With |PED| = 1.0 (approximately unit elastic), revenue stays roughly constant. At $20 × 1,000 = $20,000 vs $25 × 800 = $20,000. The price increase is neutral for revenue but profitable if margins matter.
The magnitude of PED tells you the degree of sensitivity. |PED| between 0 and 0.5 is highly inelastic (gasoline, insulin). 0.5 to 1.0 is moderately inelastic (utilities, basic food). 1.0 to 2.0 is moderately elastic (restaurants, entertainment). Above 2.0 is highly elastic (specific brand of commodity). Each range implies a different pricing strategy.
For inelastic products, raise prices incrementally and reinvest the extra margin into product improvement or marketing. For elastic products, compete on value — lower prices to capture volume, or differentiate to shift the demand curve and make it more inelastic.
Elastic demand (|PED| > 1) means customers are price-sensitive — small price increases cause large demand drops. Inelastic demand (|PED| < 1) means customers are relatively insensitive to price. Revenue increases with price hikes when demand is inelastic.
The midpoint (arc) method gives the same elasticity regardless of whether you go from A to B or B to A. Simple percentage change gives different results depending on direction, which is misleading. The midpoint method averages the starting and ending values as the base.
Options include: running a price test (raise or lower price temporarily and measure sales), analyzing historical data across price changes, surveying customers on willingness to pay, or using industry benchmarks. The more data points you have, the more reliable the estimate.
Yes, absolutely. Elasticity changes with competition (more substitutes = more elastic), customer habits (addiction = inelastic), economic conditions (recession = more elastic for luxuries), and product lifecycle (new = inelastic, mature = elastic). Recalculate at least annually.
Unit elastic demand has |PED| = 1. This means the percentage change in quantity exactly equals the percentage change in price. Total revenue stays the same regardless of price. This is the revenue-maximizing point on the demand curve.
The optimal price maximizes total revenue (or profit). If |PED| > 1, you're above the optimal price — lower it. If |PED| < 1, you're below — raise it. Price where |PED| ≈ 1 to maximize revenue. For profit maximization, you need to factor in marginal cost as well.