Price Elasticity of Demand Calculator
Calculate price elasticity of demand from old and new price/quantity data.
Determine if your product is elastic or inelastic.
Price elasticity of demand measures how sensitive your customers are to price changes. If you raise prices 10% and sales drop 20%, that’s very elastic. If sales barely change, demand is inelastic.
The Formula:
Price Elasticity of Demand (PED) = % Change in Quantity Demanded / % Change in Price
More precisely:
PED = ((Q2 − Q1) / Q1) / ((P2 − P1) / P1)
Interpreting the Result:
| PED Value | Meaning |
|---|---|
| PED | |
| PED | |
| PED | |
| PED = 0 | Perfectly inelastic (rare — e.g., insulin) |
PED is almost always negative (price up → quantity down), so economists use the absolute value.
Worked Example:
A coffee shop raises its latte price from $4.00 to $4.50 (+12.5%). Monthly sales drop from 800 to 720 cups (−10%).
PED = (−10%) / (+12.5%) = −0.8
|PED| = 0.8 → inelastic. The price increase actually increases revenue:
- Before: 800 × $4.00 = $3,200
- After: 720 × $4.50 = $3,240
Revenue Implication:
- Elastic goods (|PED| > 1): Lower price → more revenue
- Inelastic goods (|PED| < 1): Higher price → more revenue
Practical Tips:
- Necessities (utilities, medicine) tend to be inelastic
- Luxury goods and items with many substitutes tend to be elastic
- Elasticity varies by price range — the same product can be inelastic at low prices and elastic at high prices
- Use A/B price testing to measure real PED for your specific market