Price Elasticity of Demand
Measure how strongly quantity demanded responds to a change in price, using the midpoint method.
Midpoint method
Uses the arc formula so the result is the same whether the price rises or falls.
Instant classification
Tells you whether demand is elastic, inelastic, or unit elastic — and what that means for revenue.
What is price elasticity of demand?
How much buyers react to price
Price elasticity of demand (PED) measures how strongly the quantity people buy responds when the price changes. It is the percentage change in quantity demanded divided by the percentage change in price. The bigger the response, the more "elastic" demand is. As taught in standard microeconomics courses such as those from Khan Academy, it is one of the most useful numbers in pricing.
The midpoint (or arc) method bases each percentage change on the average of the two values, so the answer does not depend on which point you start from.
PED = %ΔQ ÷ %ΔP, with %Δ = (new − old) ÷ ((new + old) ÷ 2)The result is usually negative because price and quantity move in opposite directions. Economists quote the absolute value for classification: above 1 is elastic, below 1 is inelastic, exactly 1 is unit elastic.
A coffee shop raises a latte from 10 to 12 and weekly sales fall from 100 to 80.
Percent change in quantity
(80 − 100) ÷ ((80 + 100) ÷ 2) = −20 ÷ 90 = −22.2 %.Percent change in price
(12 − 10) ÷ ((12 + 10) ÷ 2) = 2 ÷ 11 = 18.2 %.Divide
−22.2 ÷ 18.2 = −1.22.Classify
|−1.22| > 1, so demand is elastic — the price rise loses more revenue than it gains.
The single most useful thing elasticity tells you is what a price change does to revenue.
Elastic (|PED| > 1)
Quantity reacts strongly. Raising the price lowers total revenue; cutting it raises revenue.
Inelastic (|PED| < 1)
Quantity barely moves. Raising the price raises total revenue.
Unit elastic (|PED| = 1)
Quantity moves in exact proportion. Revenue is unchanged by a price tweak.
Demand is usually more elastic when there are close substitutes, the item is a luxury, it takes a big share of the budget, or buyers have time to adjust. Necessities with few substitutes are inelastic.
Read the absolute value to judge sensitivity and the sign to confirm direction. A normal good gives a negative coefficient; a positive one would suggest you entered the quantities the wrong way round or are dealing with an unusual good. The percentage changes are shown alongside so you can see how the ratio was built. Remember that elasticity is a local measurement between two points — it can differ along the demand curve, so a value measured between 10 and 12 may not hold between 2 and 4.
Elasticity from two points is a snapshot, not a law.
A measurement between two points
This calculator measures arc elasticity between the two price–quantity pairs you enter. It assumes the only thing that changed was price — in reality, income, tastes, the price of related goods, and seasonality also shift demand. Use it to understand the relationship in your data, not as a guaranteed prediction of how quantity will respond to a future price change.