Price Elasticity of Demand: Formula and Midpoint Method
Calculate price elasticity of demand with the midpoint method and decide whether demand is elastic or inelastic, with two worked examples.
The formula
- Elasticity = %Δ quantity / %Δ price
- Midpoint %Δ = change / average
Ignore the negative sign and compare to 1.
Read the result
- Greater than 1: elastic (buyers react a lot)
- Less than 1: inelastic (buyers barely react)
- Equal to 1: unit elastic
Necessities tend to be inelastic; luxuries tend to be elastic.
Example 1
Price rises from $10 to $12 and quantity falls from 100 to 80. Find elasticity.
- %ΔQ = −20 / 90 = −22.2%
- %ΔP = 2 / 11 = 18.2%
- |E| = 22.2 / 18.2
|E| ≈ 1.22, so demand is elastic
Example 2
If |E| = 1.22, what happens to total revenue when the price rises?
- Elastic demand: quantity falls by a bigger percent than price rises
- Revenue = price × quantity
Total revenue falls
Common mistake
Elasticity is the slope of the demand curve
Slope depends on units; elasticity uses percentages.
Use the average (midpoint) as the base for each percent.
A steeper curve is not always more inelastic at every point.
Want more Economics practice?
The free Economics study guide has quizzes, flashcards and practice exams. 100% free, no sign-up needed.
Open the Economics guide