Elasticity measures how strongly one quantity responds to a change in another. This calculator covers the three you meet in an introductory economics course - price elasticity of demand, income elasticity and cross elasticity - using the midpoint method, and interprets each result rather than leaving you with a bare number.
Ordinary percentage change gives different answers depending on which end you start from, so economists use the midpoint formula: divide each change by the average of the two values rather than the starting one. Moving from 100 to 80 and from 80 to 100 then give the same elasticity, which is what you want from a measure of responsiveness.
For price elasticity the sign is almost always negative, because demand falls when price rises; what matters is the magnitude. Above 1 in absolute terms is elastic and a price rise loses revenue. Below 1 is inelastic and a price rise gains revenue - which is why utilities and tobacco can raise prices and why a restaurant usually cannot.
For income and cross elasticity the sign carries the meaning. Negative income elasticity marks an inferior good. Negative cross elasticity marks complements, positive marks substitutes.
Because the simple percentage-change formula gives a different answer depending on which point you start from. The midpoint method divides by the average of the two values, so moving from A to B and from B to A give the same elasticity.
An absolute value above 1 means demand is elastic: quantity moves proportionally more than price, so a price rise reduces total revenue. Below 1 is inelastic, and a price rise increases revenue. Exactly 1 is unit elastic and revenue is unchanged.
The two goods are complements - printers and ink, for example - so a price rise for one reduces demand for the other. A positive value means they are substitutes, like two competing brands of coffee.
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