What is price elasticity of demand?
Price elasticity of demand measures how much the quantity sold changes when the price changes: the percentage change in units sold divided by the percentage change in price.
Price elasticity formula
Here is how to calculate price elasticity from a price change:
Elasticity = % change in quantity sold ÷ % change in price
Elasticity is usually negative, because higher prices mean fewer sales, so people often quote it without the minus sign.
A price elasticity example
A product’s price rises from $20 to $22, a 10% increase, and weekly sales fall from 500 to 425, a 15% drop. Elasticity is −15% ÷ 10% = −1.5.
Elastic vs inelastic demand
Below −1, demand is elastic: sales fall proportionally more than the price rises. Between −1 and 0, demand is inelastic: sales fall proportionally less. Necessities and products without close substitutes tend to be inelastic; easily compared or optional products tend to be elastic.
Price elasticity and revenue
With elastic demand, raising the price loses revenue; with inelastic demand, the increase more than covers the lost volume. In the example above, weekly revenue falls from $10,000 to $9,350. Dynamic Pricing Engine simulates the revenue curve and the price that maximises it before anything goes live, so a change is tested on paper first.
Last reviewed 2026-11-01.