Price elasticity of demand calculator
Where profit peaks
Drag the handle to test a priceWhat would pricing like this be worth a year?
Answer a few questions and see the extra profit, split by where it comes from.
Questions
Divide the percentage change in units sold by the percentage change in price. If a bearing goes from $10.00 to $10.50 and monthly units fall from 1,000 to 900, the midpoint changes are −10.5% and +4.9%, so the elasticity is −2.16. Compare periods of the same length.
No single number is good; the reading tells you which way to move. Between 0 and −1 demand is inelastic, so a price rise loses fewer units than it gains in price and revenue goes up. Below −1 demand is elastic and small, targeted changes work better. The unit cost then sets the price where profit peaks.
Units move about twice as much as price, in the other direction. At a constant elasticity of −2, a 10% price rise loses about 17% of units and revenue falls by about 9%. With a unit cost of $5.90, the price that maximizes profit is $5.90 × −2 ÷ −1 = $11.80.
It measures each change against the average of the two values instead of the starting value: (Q₂ − Q₁) ÷ ((Q₁ + Q₂) ÷ 2), divided by (P₂ − P₁) ÷ ((P₁ + P₂) ÷ 2). The result is the same whether the price went up or down, which a plain percentage change does not give you.