Price Elasticity of Demand Calculator
Calculate price elasticity of demand or supply, and determine whether a product is elastic or inelastic. Understand how price changes affect revenue.
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Price Elasticity Guide
What do I need to know about Price Elasticity of Demand Formula?
PED = % change in quantity demanded ÷ % change in price. PED values: PED > 1 (elastic) — demand is sensitive to price; a 10% price rise causes >10% fall in quantity. PED < 1 (inelastic) — demand is insensitive; a 10% price rise causes <10% fall in quantity. PED = 1 (unit elastic) — percentage changes are equal. PED = 0 (perfectly inelastic) — quantity unchanged regardless of price (insulin, life-saving drugs). PED = ∞ (perfectly elastic) — consumers buy any quantity at one price but zero at any price above their maximum willingness to pay, a purely theoretical extreme rarely seen in practice.
What's the difference between Elastic and Inelastic Goods?
Inelastic demand (PED < 1) tends to apply to: necessities (food staples, medicine, utilities), goods with few substitutes, highly addictive products, goods that represent a small share of income. Elastic demand (PED > 1): luxury goods, goods with many close substitutes, non-necessities. Examples: petrol (inelastic — approximately -0.3), butter (elastic — approximately -0.8, since margarine is a substitute), foreign holidays (elastic — approximately -2.0), insulin for diabetics (nearly perfectly inelastic in the short term, since patients cannot simply stop taking essential medication regardless of price).
What's the key thing to understand about Elasticity and Total Revenue?
The critical business application: if demand is elastic (PED > 1), raising price reduces total revenue (the percentage fall in quantity exceeds the percentage rise in price). If demand is inelastic (PED < 1), raising price increases total revenue (the percentage rise in price exceeds the percentage fall in quantity). At unit elasticity (PED = 1), total revenue is maximised — a price change leaves revenue unchanged. This is why supermarkets use promotions selectively: elastic products get price cuts to boost volume and total revenue, while inelastic products are rarely discounted since a lower price would simply reduce revenue with little extra volume gained.
What's the key thing to understand about Cross-Price Elasticity and Business Strategy?
XED = % change in demand for good A ÷ % change in price of good B. Positive XED: goods are substitutes (butter and margarine). A price rise in B increases demand for A — firms try to differentiate to reduce XED between their product and competitors. Negative XED: goods are complements (printers and ink cartridges). A price rise in printers reduces demand for ink. This is why printer manufacturers sell printers cheaply and earn margins on cartridges — the negative XED means printer price strongly