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Price elasticity of demand and basic application in Excel

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Price elasticity of demand is a term from Economics.  It is defined as the absolute value of the percent change in the quantity of a product or service demanded by consumers resulting from a percentage change in the price, i.e., |(DQ/Q)/(DP/P)|.

The downloadable Excel workbook interactively illustrates the demand elasticity for a linear demand function.  It also includes a graphical display of the profit function for a monopolist.

The top part of the worksheet allows one to customize the linear demand function.  Do so by entering two data points each representing a price and a quantity.

Figure 1

The lower part of the worksheet is an interactive display of the market clearing price and quantity, the associated demand elasticity, and the monopolist's profit.

Figure 2

The worksheet contains additional information in the form of cell comments.