Price Elasticity

You raise the price and sell fewer units. Did you lose sales, or make more money? Price elasticity measures how strongly customers react — and from two price points it can estimate the price that brings in the most.

EconomicsPricingDemand

Inputs

Input examples

Enter two prices and how much you sold at each (in the same period, other things equal). Measure uses the midpoint method, so the answer is the same whichever way round you enter the points. Best price draws a straight demand line through the two points and finds the price with the most revenue, or the most profit if you enter the cost per unit. That is an estimate: real demand is rarely a straight line far from the measured prices.

Currency

Price 1 — €

Quantity sold at price 1

Price 2 — €

Quantity sold at price 2

What is Price Elasticity?

The price elasticity of demand is the percentage change in the quantity sold divided by the percentage change in the price. It is almost always negative: higher price, fewer sales. What matters is its size.

If demand is elastic (|E| > 1), sales drop by a larger percentage than the price rises, so revenue falls. If it is inelastic (|E| < 1) — think petrol or medicine — customers keep buying and a price rise increases revenue. Products with good substitutes are usually elastic.

|E| > 1elastic: price up, revenue down

|E| < 1inelastic: price up, revenue up

|E| = 1revenue at its maximum

midpointsame in both directions

Demand and Revenue

Result

Enter the values above

What a 10% Price Rise Does

approximate, small changes

Elasticity	Units sold	Revenue	Demand is
−0.2	−2%	+7.8%	very inelastic
−0.5	−5%	+4.5%	inelastic
−1	−10%	−1%	unit elastic
−2	−20%	−12%	elastic

Worked Techniques

Midpoint Method

Divide each change by the average of the two values, so going up or down gives the same answer.

Example: 10 → 12, 1000 → 800 sold: E = −1.22, elastic.

Revenue-Maximising Price

On a straight demand line, revenue is highest in the middle, where the elasticity is exactly −1.

Example: Q = 2000 − 100P: best price 10.

Profit-Maximising Price

With a cost per unit v, the best price lies halfway between the cost and the price at which nobody buys.

Example: same line, cost 4: price 12, profit 6 400.

Sources & Verification

References

N. G. Mankiw, Principles of Economics, 9th ed., Cengage, 2021 — Ch. 5 (Elasticity and Its Application).