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.
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