What price elasticity measures
Price elasticity compares the percentage change in quantity with the percentage change in price. Elasticity of demand tells you how much buyers cut back when the price rises; elasticity of supply tells you how much more sellers offer. Because it uses percentages, it doesn't depend on units, so you can compare gasoline with movie tickets.
How it's calculated
Point method: E = (dQ/dP) × (P/Q)
The midpoint method divides each change by the average of the two values, so you get the same answer whichever point you start from. The point method uses the slope of the demand or supply curve at one price, found here by differentiating Q(P).
| |E| | Reading | Price rise → total revenue (demand) |
|---|---|---|
| greater than 1 | Elastic | falls |
| exactly 1 | Unit elastic | unchanged |
| less than 1 | Inelastic | rises |
Worked examples
Demand: the price falls from $70 to $60 and quantity rises from 2,800 to 3,000.
- %ΔQ = 200 ÷ 2,900 ≈ 6.9%.
- %ΔP = −10 ÷ 65 ≈ −15.38%.
- E ≈ −0.448, so |E| ≈ 0.45: demand is inelastic in this range.
Between $120 and $130, where quantity falls from 1,800 to 1,600, E ≈ −1.47. Demand is elastic there.
Point method: for Q = 100 − 2P at P = $20, Q = 60 and dQ/dP = −2, so E = −2 × 20/60 ≈ −0.67, inelastic.
Calculating the price elasticity of supply
Use exactly the same formulas with quantity supplied. Supply elasticity is normally positive, because sellers offer more at a higher price. Choose "Supply" above and the calculator flags a negative result as unusual.
Limitations
- Elasticity changes along a straight-line demand curve: it's elastic at high prices and inelastic at low ones. A value applies only to the range or point you measured.
- Real data mixes in other changes (income, competitors' prices, seasons), so two observed points don't isolate the price effect.
- Demand elasticity is negative by the formula; many textbooks quote its absolute value. The calculator shows both.