How is the price elasticity of demand calculated with the midpoint method?

With the midpoint (arc) method, %ΔQ = (Q2 − Q1) / ((Q2 + Q1) / 2) and %ΔP = (P2 − P1) / ((P2 + P1) / 2). The elasticity Ed is then %ΔQ ÷ %ΔP. Using midpoints avoids base effects and provides a more stable measure for larger price and quantity changes.

How does elasticity affect total revenue?

If demand is elastic (|Ed| > 1), price and total revenue move in opposite directions, so a price decrease tends to increase revenue and a price increase tends to reduce revenue. If demand is inelastic (|Ed| < 1), price and revenue move together, so higher prices usually raise revenue. Around unit elasticity (|Ed| ≈ 1), changes in price tend to leave revenue roughly unchanged.

What factors influence the price elasticity of demand?

Key determinants include the availability of close substitutes, whether the product is a necessity or a luxury, the share of income spent on the good, how broadly or narrowly the market is defined, and the time horizon. In general, more substitutes, higher budget share, and longer time periods make demand more elastic.

Price Elasticity of Demand

Enter prices and quantities. We compute Ed using the midpoint (arc) method and show revenue impact.

Currency

Initial price (P1)

PKR

Initial quantity (Q1)

Final price (P2)

PKR

Final quantity (Q2)

Price elasticity of demand (Ed)

You can edit this field to back-solve a consistent Q2 under the midpoint method.

Elasticity type: —

Revenue

Edit revenue or % change to see consistent Q values.

Initial revenue (P1 × Q1)

PKR

Final revenue (P2 × Q2)

PKR

Revenue increase (%)

Elasticity (Ed)

—

%ΔP

—

%ΔQ

—

Revenue (P1×Q1)

—

Revenue (P2×Q2)

—

How the Price Elasticity of Demand Calculator Works

Enter your initial and final prices (P1, P2) and quantities (Q1, Q2). The calculator uses the midpoint (arc) method: %ΔQ = (Q2 − Q1) / ((Q2 + Q1) / 2) and %ΔP = (P2 − P1) / ((P2 + P1) / 2). Elasticity Ed is %ΔQ ÷ %ΔP. We also compute total revenue before and after (P×Q) and label your scenario as elastic, inelastic, or unit elastic.

Elastic (|Ed| > 1): demand is sensitive to price changes.
Unit elastic (|Ed| = 1): proportional response; revenue roughly unchanged.
Inelastic (|Ed| < 1): demand responds weakly; price and revenue move together.

Key Concepts

What is price elasticity of demand?

Price elasticity of demand (Ed) shows how sensitive buyers are to price changes. It is the percentage change in quantity demanded divided by the percentage change in price. Larger absolute values mean stronger sensitivity.

Why the midpoint formula?

Using averages of P1 & P2 and Q1 & Q2 avoids getting different results depending on which point you treat as the base. That makes midpoint (arc) elasticity ideal for discrete before/after scenarios.

Revenue and elasticity

With elastic demand, a price cut can increase total revenue; with inelastic demand, a price rise can increase revenue. At unit elasticity, total revenue tends to stay roughly unchanged. Always consider competition, costs, and capacity before acting.

FAQs

What does the price elasticity of demand measure?

It measures how responsive quantity demanded is to a change in price. Formally, Ed = %ΔQd ÷ %ΔP. A higher absolute value means customers react more strongly to price movements.

How do I interpret the sign of Ed?

For most goods the elasticity is negative (price up, quantity down). Many analysts focus on the absolute value |Ed|. Our tool reports the signed value for transparency and labels the elasticity type using |Ed|.

How can businesses use this calculator?

By testing alternative price–quantity scenarios, teams can see if demand is likely elastic or inelastic and whether a price change might raise or reduce revenue, helping guide promotions, price experiments, and strategic planning.