Pricing
Price Elasticity Calculator
Calculate price elasticity of demand and see whether a price change grows or shrinks revenue.
Result
Recommendation
Demand is inelastic — buyers are relatively insensitive to this price increase. Revenue improves, making this a strong pricing lever.
Revenue comparison
Current vs projected revenue at the new price point.
How do you calculate price elasticity of demand?
Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. This calculator uses the midpoint (arc) method, which measures each change against the average of the two points so the answer is the same whether the price goes up or down:
Elasticity = [(Q2 − Q1) ÷ ((Q1 + Q2) ÷ 2)] ÷ [(P2 − P1) ÷ ((P1 + P2) ÷ 2)]
For a price rise from $100 to $110 that cuts demand from 1,000 to 920 units, the calculator returns an elasticity of -0.875: inelastic, so revenue rises from $100,000 to $101,200. An absolute value below 1 means demand is inelastic, above 1 elastic, and exactly 1 unit elastic. The midpoint method is the one taught in OpenStax's Principles of Economics.
Price elasticity examples, computed by this calculator
| Change | Midpoint elasticity | Simple ratio | Type | Revenue change |
|---|---|---|---|---|
| Price up 10%, demand down 8% | -0.875 | -0.800 | Inelastic | $1,200 (+1.20%) |
| SaaS plan $29 to $39, customers 500 to 330 | -1.393 | -0.986 | Elastic | $-1,630 (-11.24%) |
| Price cut $50 to $40, units 200 to 260 | -1.174 | -1.500 | Elastic | $400 (+4.00%) |
| Price $20 to $22, units 1,000 to 905 | -1.047 | -0.950 | Elastic | $-90 (-0.45%) |
The SaaS row is why the method matters. Measured from the starting point, the simple ratio is -0.986, which looks almost unit elastic; the midpoint elasticity is -1.393, clearly elastic, and revenue does fall -11.24%. The price-cut row runs the other way: demand is elastic (-1.174), so cutting the price raises revenue by $400.
What elasticity means for your price
- Inelastic (|E| below 1): a price increase raises revenue, because volume falls proportionally less than price rises.
- Elastic (|E| above 1): a price increase lowers revenue and a price cut raises it, as long as the extra volume is profitable to serve.
- Unit elastic (|E| equal to 1): revenue is roughly unchanged; the decision turns on margin and capacity, not revenue.
Revenue is not profit. A price cut that wins revenue on elastic demand can still lose money if each extra unit has a real cost; check the margin on the new volume with the profit margin calculator before acting.
Common mistakes when measuring elasticity
- Using the simple ratio for large price changes. The start-point ratio gives a different answer for a rise than for the same cut; the midpoint method does not.
- Reading the sign as the size. Demand elasticity is almost always negative; classify by its absolute value.
- Changing other things at the same time. A launch, a seasonal swing or a new competitor in the same window moves demand too. Compare matched periods or run a split test with the A/B test significance calculator.
- Assuming one elasticity for every price. Elasticity usually changes along the demand curve, so a measurement around $29 says little about $99.
Related elasticities
The same ratio structure gives the other elasticities in the OpenStax text: price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price; cross-price elasticity is the percentage change in demand for one product divided by the percentage change in another product's price (positive for substitutes, negative for complements); and income elasticity divides the change in demand by the change in buyers' income. This calculator computes price elasticity of demand only. For setting the price itself, see how to price a product and the SaaS pricing strategy calculator.
How to use it
- Enter current price and demand as the baseline, then the proposed new price and expected demand at that price. If you do not have historical test data, model at least a conservative demand response and an optimistic one before trusting the result.
- Read price change percent, demand change percent, elasticity coefficient, elasticity type, current revenue, new revenue, revenue delta, and the recommendation. Absolute elasticity below 1 is inelastic, above 1 is elastic, and around 1 means price and volume changes roughly cancel out on revenue.
- Use elasticity to judge pricing power, but use revenue delta to judge the business consequence. Inelastic demand can support price increases, elastic demand usually punishes them, and unit-elastic demand means you need another lever such as bundling or upsells to grow.
- Pair the revenue result with margin data before acting. A revenue-neutral or slightly negative price change can still improve profit if it raises contribution margin enough, while a revenue-positive cut can still be a bad move if margin collapses.
- Re-run after real price tests, major competitor moves, or packaging changes. Compare forecast demand response to actual results so your elasticity assumption becomes evidence-based instead of guess-based.
Questions people usually ask
What is price elasticity of demand?
It measures how sensitive demand is to a price change. Elasticity = % change in demand ÷ % change in price; this tool measures each change against the midpoint of the old and new values, so the answer is the same whichever price you start from. An absolute value above 1 means demand moves more than price (elastic); below 1 means it moves less (inelastic).
What does 'elastic' vs 'inelastic' mean for pricing?
Elastic demand means buyers are price-sensitive — raising prices reduces revenue. Inelastic demand means buyers are less sensitive — raising prices can increase revenue despite some volume loss.
How do I estimate new demand?
Use historical data from past price tests, customer surveys, or competitor launches. With no data at all, do not pick one number: run the calculator at a low and a high elasticity (for example demand falling 5% and 20% for a 10% price rise) and see whether your decision survives both ends.
Why might the revenue delta be negative even with an inelastic market?
On the midpoint method it cannot: an absolute elasticity below 1 always means revenue moves in the same direction as price. A large price rise can still lose revenue, but then the midpoint elasticity is above 1 and the tool labels it elastic, even if the plain ratio from the starting point looks inelastic (a 50% rise with a 40% volume drop is -0.8 from the start but -1.25 on the midpoint). Elasticity isn't constant across price levels, so big jumps often cross from inelastic to elastic.
Is this tool free and private to use?
Yes. AI Biz Hub tools are free, no-signup browser tools. Inputs stay in your browser unless you choose to share a URL.
Is this professional advice?
No. Outputs are business planning estimates — not legal, tax, or pricing advice. Real elasticity requires market testing.
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Use it from code
The same calculation as a JavaScript module you can import. It runs where you import it, with no request, key or rate limit.
import { compute } from "https://aibizhub.io/engines/price-elasticity-calculator.js";Input and output contract, TypeScript types and the guide for agents.