Price Elasticity Simulator
Visualize how price changes affect demand and calculate your revenue-optimizing price point based on elasticity.
Parameters
Analysis
At an elasticity of -1.5, your demand is elastic. Lowering prices typically increases total revenue, as the volume gain outweighs the price drop.The chart indicates a revenue peak at $42.5.
Understanding the Curves
The relationship between Price, Volume (Quantity), and Total Revenue.
Revenue Hill
The blue line is your Total Revenue. You want to be at the very top of this hill. If you are to the left, you are underpricing. If to the right, you are overpricing.
Demand Decay
The grey line shows Unit Volume. It always goes down as price goes up. The question is: how fast? Steeper slopes mean higher sensitivity.
The Elasticity Coefficient
If you set elasticity to -1.0, the Revenue line becomes flat. This means price changes have NO effect on revenue. This rarely happens in real life.
Execution Steps
Enter your current selling price and monthly sales volume (units).
Adjust the 'Elasticity' slider. (See Key Concepts for help estimating this).
Observe the blue Revenue Curve. The peak of this curve represents your theoretical revenue-maximizing price.
Compare the 'Optimal Price' to your current price to see if you are under or over-pricing.
Pro Strategy
- If your product is highly unique with no competitors, demand is likely Inelastic (closer to 0). You can likely raise prices.
- If you sell a commodity available everywhere, demand is likely Elastic (closer to -3.0). You must compete on price or efficiency.
- Most retail products fall between -1.5 and -2.5.
- Use this simulator to 'stress test' your revenue projections before launching a sale.
Core Concepts
Price Elasticity of Demand (PED)
A measurement of the change in consumption of a product in relation to a change in its price. Formula: % Change in Quantity / % Change in Price.
Elastic Demand (<-1.0)
Consumers are sensitive to price. A small price cut results in a large increase in sales volume. (e.g., Fast Food, Clothes)
Inelastic Demand (>-1.0)
Consumers are insensitive to price. Raising prices doesn't lose many customers. (e.g., Prescription Meds, Utilities)
Unit Elastic (-1.0)
Percentage change in quantity is exactly equal to percentage change in price. Revenue remains constant regardless of price.
What is Price Elasticity Simulator?
Price elasticity of demand (PED) measures the responsiveness of the quantity demanded to a change in price. This simulator uses a constant elasticity model to project future revenue based on your current data points.
Best For
- • Planning a price increase to check potential volume loss.
- • Planning a sale to see if the volume lift will offset the margin loss.
- • Estimating the optimal price for a product with known elasticity.
Limitations
- • Assumes constant elasticity across all price points (reality is often linear or curved).
- • Does not factor in competitor reaction (e.g., a price war).
- • Does not account for psychological price thresholds (e.g., $99 vs $100).
Alternative Methods
A/B Testing
Running a live test to measure actual elasticity.
Gabor-Granger
Surveying customers to estimate elasticity before launch.
Industry Applications
See how this methodology generates real revenue uplift in different sectors.
Fashion Retailer Price Hike
Brand wanted to raise prices by 15% to cover rising cotton costs.
modeled impact using -2.2 elasticity (typical for fashion).
SaaS Software Upgrade
B2B tool wanted to increase prices for legacy users.
Estimated inelastic demand (-0.4) due to high switching costs.
Consumer Electronics Sale
Store wanted to clear inventory of old TVs.
Modeled a 20% discount with -3.0 elasticity.