Price Elasticity Calculator
Measure how sensitive consumer demand is to a change in price. Economists, retailers, and product managers use it to optimize pricing and forecast the impact of price changes.
About this calculator
Price Elasticity of Demand (PED) quantifies how much the quantity demanded of a good changes in response to a price change. The formula is: PED = (% Change in Quantity) / (% Change in Price) = [(newQuantity − initialQuantity) / initialQuantity] / [(newPrice − initialPrice) / initialPrice]. If |PED| > 1, demand is elastic — consumers are very sensitive to price. If |PED| < 1, demand is inelastic — consumers buy roughly the same amount regardless of price. If |PED| = 1, demand is unit elastic. PED is almost always negative (price rises cause demand to fall), so absolute value is used for comparison. Luxury goods tend to be elastic; necessities like insulin tend to be inelastic.
How to use
A coffee shop raises its latte price from $4.00 to $4.80 (a 20% increase). Daily sales fall from 200 cups to 160 cups (a 20% decrease). PED = (160 − 200) / 200 ÷ (4.80 − 4.00) / 4.00 = (−40/200) / (0.80/4.00) = (−0.20) / (0.20) = −1.0. The absolute value is 1.0, meaning demand is unit elastic — the percentage drop in quantity exactly matched the price increase, leaving total revenue unchanged. Enter your own initial and new prices and quantities to test any pricing scenario.
Frequently asked questions
How do I interpret a price elasticity of demand value for my product?
An elasticity of −2.0 means a 1% price increase causes a 2% drop in quantity demanded — demand is highly elastic, so raising prices will shrink revenue. An elasticity of −0.3 means a 1% price increase causes only a 0.3% drop in quantity — demand is inelastic, and raising prices will increase total revenue. The breakeven point is −1 (unit elastic), where price changes leave revenue unchanged. Products with few substitutes, like prescription drugs or utilities, tend to have inelastic demand, while fashion items and restaurant meals tend to be more elastic.
Why is price elasticity of demand almost always a negative number?
By the Law of Demand, price and quantity demanded move in opposite directions — when price goes up, quantity demanded goes down, and vice versa. This inverse relationship means the numerator and denominator of the elasticity formula will always have opposite signs, producing a negative result. Economists often report the absolute value for convenience, but the negative sign carries important meaning: it confirms that the good behaves normally. Goods with a positive elasticity (Giffen goods) are extremely rare theoretical exceptions that almost never occur in real markets.
How can a business use price elasticity to maximize revenue?
Revenue equals price multiplied by quantity sold, so maximizing revenue requires understanding how price changes affect volume. If demand is elastic (|PED| > 1), lowering the price increases quantity enough to raise total revenue, while raising the price shrinks revenue. If demand is inelastic (|PED| < 1), raising the price increases revenue because the quantity drop is proportionally smaller. The revenue-maximizing price point occurs where elasticity equals −1 (unit elastic). Businesses that segment markets — charging different prices to different customer groups — can exploit different elasticities across segments to maximize overall revenue.