Price Elasticity of Demand Calculator

Calculate the price elasticity of your products using Priceedge calculator tool

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If price decreases, quantity must increase (and vice versa).
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What is the price elasticity of demand?

Imagine you own an electronics store, and you've been selling a popular smartphone model for $700. Now, you're contemplating increasing the price to $800, as you believe it offers premium features. However, you're curious about how this price increase might impact your sales and total revenue.

In this case, you're exploring the concept of price elasticity of demand for electronic devices. It measures how responsive consumers are to changes in the price of electronic products.

If the demand for this smartphone is highly elastic, a $100 price increase could lead to a significant decrease in sales, potentially resulting in lower overall revenue despite the higher price. This might occur if there are similar smartphones available at lower prices, making customers price-sensitive.

Conversely, if the demand for this smartphone is inelastic, the price hike might result in only a modest reduction in sales, and the increased revenue from the higher prices may offset the drop in the number of units sold. This could be the case if your smartphone offers unique features or if there's strong brand loyalty among your customers.

Midpoint formula for price elasticity of demand

PED
=
(Q1 - Q0) / [(Q1+Q0) / 2]
(P1 - P0) / [(P1+P0) / 2]
where:
  • P0 – Initial price of the product;
  • P1 – Final price of the product;
  • Q0 – Initial demand;
  • Q1 – Demand after the price change;
  • PED – Price elasticity of demand.

The price elasticity of demand is almost always negative. It means that the relationship between price and demand is inversely proportional – the higher the price, the lower the demand, and vice versa.

You can also use this midpoint method calculator to find any of the values in the equation ( P0, P1, Q0 or Q1 ). Simply input all of the remaining variables, and the result will be calculated automatically.

PRICE ELASTICITY CALCULATOR

Frequently Asked Questions

What does the price elasticity of demand measure?
The price elasticity of demand measures how responsive the quantity demanded of a good or service is to a change in its price. In other words, it quantifies the sensitivity of consumer demand to changes in the price of a product.
What are the major determinants of price elasticity of demand?
The major determinants of price elasticity are:
  • Availability of Substitutes: The availability of close substitutes for a product.
  • Necessity vs. Luxury: Whether a product is considered a necessity or a luxury.
  • Proportion of Income Spent: The proportion of a consumer's income spent on a product.
  • Time Horizon: The time available for consumers to adjust their behavior.
  • Brand Loyalty: The strength of brand loyalty associated with a product.
  • Habit Formation: The presence of strong consumer habits related to a product.
  • Perceived Necessity: How consumers perceive a product's necessity.
  • Market Definition: How the market is defined, including brand-specific considerations.
  • Income Level: The income level of consumers.
  • Government Regulations and Subsidies: The impact of government policies on demand elasticity.
How does elasticity affect a company's pricing policy?
Price elasticity of demand is essential for developing effective pricing policies. It helps companies make informed decisions about setting prices, maximizing revenue, managing profitability, and staying competitive in the market. Companies must continuously monitor and analyze elasticity to adapt their pricing strategies to changing market conditions and consumer behavior.
How is the price elasticity of demand measured?
The price elasticity of demand (PED) is measured by calculating the percentage change in the quantity demanded of a product in response to a percentage change in its price. The formula is: PED = (% change in quantity demanded) / (% change in price). The resulting value indicates how responsive consumer demand is to price changes.
How is total revenue related to the price elasticity of demand?
For two products that initially cost the same, the total revenue for the inelastic product will be higher if the prices are increased. This is because the demand for elastic products is more affected by their price, so people will stop buying them if an increase occurs, lowering total revenue. Inelastic products are not affected in the same way so total revenue will increase.

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