Price Elasticity Formula
The Price Elasticity Formula quantifies how responsive customer demand is to changes in price. It's a critical metric for businesses to understand market behavior and optimize pricing strategies through experimentation.
Bottom Line
The Price Elasticity Formula quantifies how responsive customer demand is to changes in price. It's a critical metric for businesses to understand market behavior and optimize pricing strategies through experimentation.
Price Elasticity Calculator
Calculate price elasticity of demand and see whether a price change grows or shrinks revenue.
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Formula
Copy the exact expression or work through it step by step below.
Price Elasticity = Quantity Change Percent / Price Change Percent Variables
PE
Price Elasticity
The price elasticity of demand: how sensitive quantity sold is to a price change. A value below minus 1 (elastic) means demand falls faster than price rises; between 0 and minus 1 (inelastic) means it falls slower.
QCP
Quantity Change Percent
The percentage change in quantity sold, as a number (for example minus 8 for an 8% drop). The numerator; usually moves opposite to price.
PCP
Price Change Percent
The percentage change in price, as a number (for example 5 for a 5% increase). The denominator that drives the demand response.
Step By Step
- 1
Set the baseline case with the real calculator inputs.
Current Price = $100, New Price = $110, Current Demand = 1,000, New Demand = 920
- 2
Compute each percentage change against the starting value and keep their signs, since the negative ratio is what reveals elastic versus inelastic demand.
Quantity falling from 1,000 to 920 is a minus 8% change against a plus 10% price move.
- 3
Apply the formula and read the first calculator outputs, not just the headline assumption.
The calculator lands with price change pct at 10.0% and demand change pct at -8.00%.
- 4
Re-run at several price points, since elasticity is rarely constant: demand that is inelastic at low prices often turns elastic past a threshold.
An elasticity of minus 1.6 means a 5% price rise loses about 8% of unit sales.
Worked Example
Price Elasticity sample case
Current Price
$100
New Price
$110
Current Demand
1,000
New Demand
920
Price Elasticity = Quantity Change Percent / Price Change Percent using current price $100, new price $110, current demand 1,000, new demand 920.
The calculator lands with price change pct at 10.0% and demand change pct at -8.00%.
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Open →Sources & References
- Principles of Economics — OpenStax
- Managerial Economics & Business Strategy — McGraw-Hill Education
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