Price Elasticity of Demand Calculator

Q: Elastic vs Inelastic Goods

Inelastic 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

Q: 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

Price Elasticity Guide

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

Elastic vs 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

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 c

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

Not financial advice. This calculator is for general information and education only. Figures are estimates and may not reflect your circumstances. For decisions, consult the FCA register and a qualified financial adviser. See our editorial standards.

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