How it works
Price elasticity of demand measures how sensitive buyers are to price: the percentage change in quantity demanded divided by the percentage change in price. It is normally negative, because higher prices reduce the quantity sold.
If the absolute value is above 1, demand is elastic and raising prices lowers total revenue. Below 1, demand is inelastic and a price increase raises revenue.
This calculator uses the midpoint (arc) method, which divides each change by the average of the two values. That gives the same answer whether the price rises or falls.
Formula
E = [(Q₂ − Q₁) ÷ ((Q₁ + Q₂) ÷ 2)] ÷ [(P₂ − P₁) ÷ ((P₁ + P₂) ÷ 2)]
Questions people ask
Why is elasticity usually negative?
Price and quantity demanded normally move in opposite directions. Economists often quote the absolute value, so an elasticity of −1.5 may be described as 1.5.
Why use the midpoint method?
A simple percentage change depends on which value you start from. Going from $10 to $12 is +20%, but $12 to $10 is −16.7%. The midpoint method gives one consistent answer for both directions.
What makes demand inelastic?
Few substitutes, necessity goods, a small share of the buyer's budget and short time horizons. Gasoline and prescription drugs are classic inelastic examples.