What does the price elasticity of demand measure?

Price elasticity of demand measures how responsive quantity demanded is to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Higher absolute values indicate stronger sensitivity to price changes.

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.

How do I interpret the sign of Ed?

For most normal goods, price elasticity of demand is negative because price and quantity demanded move in opposite directions. Many analysts focus on the absolute value (|Ed|) when classifying demand as elastic, inelastic, or unit elastic. This calculator shows the signed value for clarity while interpreting elasticity type using |Ed|.

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.

How can businesses use this calculator?

Businesses can plug in different price and quantity scenarios to estimate elasticity and see how revenue might change. This helps teams test promotions, evaluate price increases, forecast demand responses, and support evidence-based pricing strategies without needing to manually compute midpoint elasticity each time.

Price Elasticity of Demand Calculator

Home About Us Contact Us Terms & Conditions Privacy Policy

Price Elasticity of Demand Calculator

Home About Us Contact Us Terms & Conditions Privacy Policy

Sitemap

About us
Contact us
Home
Privacy
Terms

Price Elasticity of Demand Calculator

Make smarter pricing decisions with fast, accurate elasticity insights.

Home
About Us
Contact Us
Terms & Conditions
Privacy Policy
Sitemap