Price Elasticity of Demand Calculator
Price elasticity of demand (PED) is the standard microeconomics measure of how responsive demand is to a price change. A value with absolute magnitude greater than 1 means demand is elastic (sensitive to price). A value with absolute magnitude less than 1 means demand is inelastic (not very sensitive). Enter the original and new price and quantity demanded to calculate the elasticity, expected revenue change, and whether the product is elastic or inelastic.
Price elasticity of demand formula
% Change in Quantity = (Q2 - Q1) / Q1 x 100
% Change in Price = (P2 - P1) / P1 x 100
PED = % Change in Quantity Demanded / % Change in Price
This is the point elasticity formula using the original values as the base. An alternative approach is the midpoint (arc elasticity) formula, which uses the average of the two values as the base for a more symmetric result when changes are large.
Interpreting elasticity values
- |PED| = 0: Perfectly inelastic. Demand does not change regardless of price (rare in practice, e.g., life-saving medications with no substitutes).
- 0 < |PED| < 1: Inelastic demand. A price increase raises total revenue. Examples: fuel, utilities, tobacco.
- |PED| = 1: Unit elastic. Total revenue stays the same after a price change.
- |PED| > 1: Elastic demand. A price increase reduces total revenue. Examples: luxury goods, discretionary services, products with many substitutes.
- |PED| = infinity: Perfectly elastic. Any price increase causes demand to fall to zero (competitive commodity markets).
Price elasticity: frequently asked questions
What is price elasticity of demand?
Price elasticity of demand (PED) measures how much the quantity demanded of a product changes in response to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. This is a standard concept in microeconomics, defined in textbooks such as those aligned with the College Board AP Economics curriculum.
What does an elasticity value mean?
If |PED| > 1, demand is elastic: a price increase causes a proportionally larger drop in quantity demanded, reducing total revenue. If |PED| < 1, demand is inelastic: a price increase causes a smaller drop in demand, increasing total revenue. If |PED| = 1, demand is unit elastic: revenue stays unchanged.
Why is price elasticity usually negative?
Price and quantity demanded typically move in opposite directions (law of demand): when price rises, demand falls. This means the elasticity value is usually negative. Economists often refer to the absolute value (|PED|) when comparing elasticities to avoid confusion.
What factors affect price elasticity?
Key factors include availability of substitutes (more substitutes = more elastic), necessity vs. luxury (necessities tend to be inelastic), proportion of income spent on the good (higher proportion = more elastic), and time horizon (demand becomes more elastic over longer periods as consumers find alternatives).
How do I use price elasticity to set prices?
If your product has inelastic demand (|PED| < 1), a price increase raises total revenue. If demand is elastic (|PED| > 1), a price decrease raises total revenue by increasing volume enough to offset the lower margin. Use elasticity estimates from your own price test data or industry research to guide pricing decisions.
Official sources
- Bureau of Economic Analysis: Consumer Spending Data (used for empirical elasticity research).
- Congressional Budget Office: Price Elasticity of Demand for Health Insurance (example of published elasticity research).
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.