Price Elasticity of Demand Calculator

Both measure how strongly quantity demanded reacts to price, but they use different bases for the percent changes. Point elasticity uses the original price and quantity as the base: % change in quantity divided by % change in price, both relative to (old price, old quantity). The drawback is that swapping the start and end points changes the result. Midpoint or arc elasticity uses the average of old and new as the base for both percent changes, so going from $10 to $12 gives the same elasticity as going from $12 to $10. The midpoint formula is the textbook default for finite price changes and is what most economics courses teach. Use point elasticity when you have a calculus-style instantaneous derivative or a true starting reference, and midpoint elasticity for two observed data points like a before-and-after sale.

An absolute elasticity of 1 is the dividing line. Inelastic demand (|E_d| less than 1) means quantity changes by a smaller percentage than price, so demand is unresponsive. Necessities like insulin, gasoline, electricity, and basic food are inelastic, with insulin sitting near 0.2: a 10% price increase cuts demand only about 2%. Elastic demand (|E_d| greater than 1) means quantity changes by more than price, so demand is highly responsive. Luxury cars, restaurant meals, and goods with close substitutes are elastic, often 2 to 4, where a 10% price increase can cut sales 20 to 40%. Unit elastic (|E_d| equals 1) is the boundary: a 1% price move is exactly offset by a 1% quantity move. Perfectly inelastic (0) and perfectly elastic (infinity) are the extremes used in textbook diagrams.

Total revenue (price times quantity) moves in opposite directions for elastic vs inelastic goods. When demand is inelastic, raising price grows total revenue because the smaller drop in quantity is outweighed by the larger gain on each unit sold. Utilities and prescription drug companies exploit this every year. When demand is elastic, raising price shrinks total revenue because the larger drop in quantity outweighs the higher per-unit price; in that regime cutting price is the way to grow revenue. This is the logic behind Tesla's 2023 price cuts (highly elastic at the new-car level) and the logic behind annual insurance premium increases (inelastic in the short run). At unit elasticity, total revenue is at its maximum and a small price move does not change it at the margin.

Empirical estimates from Tellis (1988), Hamilton (2009), and the OECD give a rough ladder. Inelastic: insulin around 0.2, gasoline 0.25 to 0.4 in the short run, electricity 0.3, cigarettes 0.4, salt and table sugar near 0.1. Necessities and addictive goods cluster here because buyers have no real alternative in the short run. Around unit elasticity: bread, milk, and most basic groceries with weak substitutes. Elastic: restaurant meals 1.5 to 2.3, soft drinks of a specific brand 3 to 4, luxury cars around 3, airline leisure travel 1.5 to 2.0, and individual stock-keeping units in a competitive supermarket can hit 5 or higher because buyers freely switch between brands. The general rule is that the more substitutes a good has, the more elastic its demand, and the more time buyers have to adjust, the more elastic it becomes.

Cross-price elasticity measures how the quantity demanded of one good responds to the price of another good, not its own price. The formula is the percent change in quantity of good A divided by the percent change in price of good B. The sign matters: positive cross-price elasticity means the two goods are substitutes (a price increase in Pepsi raises Coke sales, so the cross-price elasticity is positive), and negative cross-price elasticity means the two goods are complements (a price increase in printers reduces ink sales, so the cross-price elasticity is negative). Close substitutes typically sit at +1 to +3, distant substitutes near 0, complements at -0.5 to -2, and strong complements like razors and razor blades can run more negative. This calculator computes own-price elasticity. Cross-price elasticity uses the same formula but swaps the price input to the other good.