Price Elasticity of Demand (PED) Calculator

You can use this price elasticity of demand calculator to calculate the price elasticity of demand. Price elasticity of demand is a measurement that determines how demand for goods or services may change in response to a change in the prices of those goods or services.

How to use the price elasticity of demand calculator:

1. Input the current price
2. Input the new price
3. Input the current quantity
4. Input the new quantity
5. Click on the "Calculate" button to generate the results.

What is Price Elasticity of Demand?

Price elasticity measures the extent to which a customer is sensitive to the prices of a product or service. Analysts frequently use it to determine what impact a change in the price of something will have on demand.

The basic understanding that underpins the concept of price elasticity is based on a fundamental assumption: There is a direct correlation between price and demand; i.e., the more the prices of products increase, the less demand there will be for them. However, in reality, price elasticity rarely functions as a direct causal relationship because products typically fall into different categories according to their importance and value to the consumer.

Formula for Price Elasticity of Demand

The PED calculator employs the midpoint formula to determine the price elasticity of demand.

Price Elasticity of Demand (PED) = % Change in Quantity Demanded / % Change in Price

PED = ( (Q_N - Q_I ) / (Q_N + Q_I ) / 2) / (( P_N - P_I ) / ( P_N + P_I ) / 2 )

Where:

PED  is the Price Elasticity of Demand,

Q_N  is the new quantity demanded,

Q_I  is the initial quantity demanded,

P_N  is the new price,

P_I  is the initial price.

There are five types of price elasticity of demand. These are detailed in the table below.

Calculating Price Elasticity of Demand: An Example

Let's say that we wish to determine the price elasticity of demand when the price of something changes from $100 to $80 and the demand in terms of quantity changes from 1000 units per month to 2500 units per month.

Solution:

Initial Price = 100, New Price = 80

Initial Quantity = 1000, New Quantity = 2500

PED = ( (2500 - 1000) / (2500 + 1000) / 2) / ( (80 - 100) / (80 + 100) / 2)

PED = 0.2143 / -0.0556

PED = -3.8571

Take the absolute value of -3.8571, PED = 3.8571

Since |PED| > 1 ⇒ demand is elastic.

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