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Price Elasticity of Demand Calculator

This tool helps quantify the relationship between price and demand, empowering smarter pricing decisions. Calculate how sensitive your customers are to price changes and optimize your pricing strategy.

How It Works

The calculator uses the midpoint arc elasticity formula to provide a more accurate measure for larger price changes:

PED = ((Q₂ - Q₁) / ((Q₁ + Q₂) / 2)) / ((P₂ - P₁) / ((P₁ + P₂) / 2))

This method calculates percentage changes relative to the average of initial and final values, making it more accurate than simple percentage change calculations.

Inputs Expl

ained
    >Initial Price (P₁): The original price of your product or service
  • New Price (P₂): The changed price after adjustment
  • Initial Quantity Demanded (Q₁): The quantity sold at the original price during a specific period
  • New Quantity Demanded (Q₂): The quantity sold at the new price during the same period

Example2>

A coffee shop raises the price of a latte from $3.00 to $3.50 and sees sales drop from 500 to 400 cups per day.

P₁ = $3.00, P₂ = $3.50, Q₁ = 500, Q₂ = 400

Result:strong> PED = -1.875, indicating elastic demand

Tips & Notes

    <
li>Demand tends to be more elastic when there are close substitutes available
  • Luxury goods often have more elastic demand than necessities
  • Brand loyalty can
    • reduce elasticity for certain products
  • Elasticity typically increases over longer time periods as consumers find alternatives

    • Frequently Asked Questions

    A PED of -0.5 indicates inelastic demand. This means a 1% increase in price leads to only a 0.5% decrease in quantity demanded. Revenue would increase with a price increase.

    PED is typically negative due to the law of demand: as price increases, quantity demanded decreases, and vice versa. The inverse relationship results in a negative coefficient.

    Businesses use PED to set optimal pricing strategies, forecast revenue impacts of price changes, identify price-sensitive customer segments, and make informed decisions about promotions or discounts.

    While PED measures sensitivity to price changes, income elasticity of demand measures sensitivity to changes in consumer income. Income elasticity determines whether a good is normal (positive coefficient) or inferior (negative coefficient).

    Unitary elastic demand occurs when |PED| = 1, meaning percentage changes in price exactly equal percentage changes in quantity demanded. Total revenue remains unchanged when prices change.

    Disclaimerh2>

    This calculator is for informational and educational purposes only. Results should not be considered as professional financial or economic advice. Actual demand elasticity may vary based on market conditions, consumer behavior, and other factors not accounted for in this simplified model.

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    Calculate Price Elasticity

    Please enter a valid positive price.
    Please enter a valid positive price.
    Please enter a valid positive quantity.
    Please enter a valid positive quantity.

    Results

    Enter values and click Calculate PED

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