Price Elasticity Calculator
Demand is inelastic: buyers barely react, so a price rise brings in more revenue.
How the price elasticity calculation works
Find the % change in quantity from the midpoint
Sales fell from 1,000 to 850. The change of −150 divided by the average of 925 is −16.2%.
Find the % change in price the same way
Price rose from $10 to $12. The change of $2 divided by the average of $11 is +18.2%.
Divide quantity change by price change
−16.2% ÷ 18.2% = −0.89. Using midpoints gives the same answer whether the price goes up or down.
Read the size, ignore the sign
Above 1 is elastic (revenue falls when price rises). Below 1 is inelastic (revenue rises). Here revenue went from $10,000 to $10,200.
Worked example. You raise a price from $10 to $12 and weekly sales drop from 1,000 to 850. Elasticity is −16.2% ÷ 18.2% = −0.89, so demand is inelastic and revenue rises by $200.
Price Elasticity FAQ
How do I calculate price elasticity of demand?
Divide the percentage change in quantity by the percentage change in price. With the midpoint method each change is divided by the average of the old and new values.
What is the price elasticity of demand formula?
Elasticity = % change in quantity ÷ % change in price. With the midpoint (arc) formula, % change in quantity = (Q2 − Q1) ÷ ((Q1 + Q2) ÷ 2), and % change in price = (P2 − P1) ÷ ((P1 + P2) ÷ 2). This calculator uses the midpoint formula.
Why use the midpoint method instead of simple % change?
The simple method divides by the starting value, so the answer depends on direction. From $10 and 1,000 units to $12 and 850 units it gives −15% ÷ 20% = −0.75. Going back from $12 to $10 it gives +17.6% ÷ −16.7% = −1.06, which would even flip the result to elastic. The midpoint method gives −0.89 both ways.
What is the difference between elastic and inelastic demand?
If the elasticity, ignoring the sign, is above 1, demand is elastic: sales change by a bigger percentage than price, so a price rise lowers revenue. Below 1 it is inelastic: sales change less than price, so a price rise raises revenue. Exactly 1 is unit elastic and revenue stays the same. For example, if sales at $12 fell to 600 instead of 850, elasticity would be −2.75 and revenue would drop from $10,000 to $7,200.
What does an elasticity of −0.89 mean?
A 1% price rise cuts quantity sold by about 0.89%. Because that's less than 1, demand is inelastic and revenue goes up with the price.
Why is price elasticity usually negative?
When price goes up, people usually buy less, so the two changes move in opposite directions. Most people quote the absolute value.
Does higher revenue mean higher profit?
Not always. Inelastic demand means revenue rises with price, and because you sell fewer units your costs usually fall too, so profit rises even more. With elastic demand revenue falls, but profit can still go up if your margin per unit is thin. Check the result with the price increase calculator, which uses your margin.
Can I trust one price test?
Treat it as a rough guide. Seasons, promotions and competitors' prices also move sales, so test over comparable periods.