Price Elasticity of Demand Calculator

Calculate the best price of your product based on the price elasticity of demand. Use this calculator to determine the elasticity of your product. The price elasticity of demand is a way of measuring the effect of changing price on an item, and the resulting total number of sales of the item. In other words, it’s a metric to see if increasing or decreasing the price of a product will increase it’s total revenue.

Price Elasticity of Demand Formula

The following formula can be used to calculate the price elasticity of demand:

PED = [ (Q₁ – Q₀) / (Q₁ + Q₀) ] / [ (P₁ – P₀) / (P₁ + P₀) ]

• Where PED is price elasticity of demand
• P₀ is the initial price
• P₁ is the final price
• Q₀ is the initial demand (in units)
• Q₁ is the final demand after price change

The higher the magnitude elasticity the higher the result increase in revenue will be with a decrease in price. A low elasticity will mean that a decrease in price will only result in a small increase in revenue.

How to calculate price elasticity of demand

Lets, take a look at an example of how one might use this calculator, or calculate the price elasticity of demand.

First, let’s assume you have a product that you have been selling for a year. That product currently costs \$5.00 and sells at 10 units per day.

Next, we want to experiment with decreasing the price of this item so we chose to lower the item to \$4.50. This results in an increase in sales to 15 units per day.

Using the calculator above, we find that the price elasticity of demand is equal to -3.8. As mentioned above the greater the magnitude the greater the elasticity. Even though the result is negative, the magnitude is much greater than 1, which is what matters.