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Formula, in Experimentation

Price Elasticity Formula

The Price Elasticity Formula quantifies how responsive customer demand is to changes in price. It's a critical metric for businesses to understand market behavior and optimize pricing strategies through experimentation.

3 variables. Published Mar 12, 2026. Updated Oct 5, 2026. By AI Biz Hub.

Formula
Price Elasticity = Quantity Change Percent / Price Change Percent, with each percent change measured against the midpoint of the old and new values

Variables

PE

Price Elasticity

The price elasticity of demand: how sensitive quantity sold is to a price change. A value below minus 1 (elastic) means demand falls faster than price rises; between 0 and minus 1 (inelastic) means it falls slower.

QCP

Quantity Change Percent

The percentage change in quantity sold, measured against the average of old and new quantity (for example 1,000 to 920 is minus 8.33%). The numerator; usually moves opposite to price.

PCP

Price Change Percent

The percentage change in price, measured against the average of old and new price (for example $100 to $110 is plus 9.52%). The denominator that drives the demand response.

Step by step

  1. 1

    Set the baseline case with the real calculator inputs.

    Current Price = $100, New Price = $110, Current Demand = 1,000, New Demand = 920

  2. 2

    Compute each percentage change against the midpoint of the two values and keep their signs. The midpoint method gives the same elasticity whichever price you start from, and an absolute value below 1 then always means revenue moves with price.

    Quantity falling from 1,000 to 920 is minus 80 over a midpoint of 960, or minus 8.33%, against a price move of plus 10 over a midpoint of 105, or plus 9.52%.

  3. 3

    Apply the formula and read the first calculator outputs, not just the headline assumption.

    The calculator lands on an elasticity of -0.875 (inelastic), while the plain change tiles show price +10.0% and demand -8.00% from your current values.

  4. 4

    Re-run at several price points, since elasticity is rarely constant: demand that is inelastic at low prices often turns elastic past a threshold.

    An elasticity of minus 1.6 means a 5% price rise loses about 8% of unit sales.

Worked example

Price Elasticity sample case

Current Price

$100

New Price

$110

Current Demand

1,000

New Demand

920

Price Elasticity = (-80 / 960) / (10 / 105) using current price $100, new price $110, current demand 1,000, new demand 920.

The calculator lands on an elasticity of -0.875 (inelastic), with price change pct at 10.0% and demand change pct at -8.00%.

Common variations

Percentage inputs usually need a gross-versus-net check so the same base is being compared.
Scenario variants are useful because fixed assumptions rarely survive contact with real life unchanged.
Use Price Elasticity Calculator to compare the baseline result with one stressed case before relying on a single answer.

Run the numbers next

Sources

  1. Principles of Economics , OpenStax
  2. Managerial Economics & Business Strategy , McGraw-Hill Education

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