Price elasticity of demand (PED) measures how strongly buyers react to a change in the price. A rail company raises the fare from €20 to €22. Journeys fall from 5,000 to 4,800 a day. How strongly did travellers react?
Calculate PED in three steps
% change in quantity demanded
(4,800 − 5,000) ÷ 5,000 × 100 = −4%
% change in price
(22 − 20) ÷ 20 × 100 = +10%
Divide: quantity over price
PED = −4 ÷ 10 = −0.4: inelastic, a weak reaction.
How a 2-mark calculation is marked
| You write | Marks |
|---|---|
| Valid working and the answer | 2 |
| The answer only, no working | 1 |
| The formula upside down (price over quantity) | 0 |
The points to remember
- PED = % change in quantity demanded ÷ % change in price.
- Always divide each change by the original value.
- Quantity goes on top, price underneath.
- PED is negative (price and quantity move opposite ways): judge its size.
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The size of PED tells you how strong the reaction is.
The range of PED
| PED (ignoring the minus) | Name | What it means |
|---|---|---|
| 0 | Perfectly inelastic | Quantity does not change at all |
| between 0 and 1 | Inelastic | Quantity changes by a smaller % than the price |
| 1 | Unitary | Quantity changes by the same % as the price |
| more than 1 | Elastic | Quantity changes by a bigger % than the price |
| ∞ (infinity) | Perfectly elastic | Any price rise and buyers stop buying |
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The points to remember
- Price inelastic: a change in price leads to a proportionately smaller change in quantity demanded (PED < 1).
- Price elastic: a proportionately larger change (PED > 1).
Three special curves have the same PED all along them: vertical (PED = 0), horizontal (PED = ∞) and unitary (PED = 1).
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See how examiners mark answers
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Higher Level adds one idea: along a straight-line demand curve, PED is not the same everywhere.
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The points to remember
- Top half: elastic (PED > 1). Bottom half: inelastic (PED < 1). Midpoint: unitary.
- Why: high up, a €1 cut is a small % of a high price but a big % of a small quantity.
- MR above zero: elastic. MR below zero: inelastic.
In the exam: Paper 3 has asked this twice for 4 marks: label D and MR, mark elastic, unitary and inelastic, and give one reason. Wrong labels cap it at 3.
Four things decide whether demand is elastic or inelastic.
What makes demand elastic or inelastic
Many close substitutes
Coffee at one café, with three cafés on the same street.
A necessity
People still buy bread, medicine and electricity when the price rises.
A big share of income
A 10% rise on a car hurts; on a box of matches nobody notices.
More time to adjust
Drivers switch to buses or electric cars only after a while.
Primary commodities: low PED
- Food, fuel, metals: often necessities.
- Few substitutes: no other grain makes bread.
- A small share of the final price: coffee beans in a café latte.
Manufactured products: higher PED
- Many brands compete: close substitutes.
- Often not necessities.
- A bigger share of income: phones, cars, furniture.
Remember it as: Substitutes, necessity, share of income, time: SNIT.
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Quick reminder
- Curves: a straight-line D and MR, twice as steep from the same point
- Marks: P1 and Q1 above where MR cuts the Q axis
- PED > 1 above P1, PED = 1 at P1, PED < 1 below it
- No numbers, no title
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Paper 1 asked this in May 2025, as part (a) for 10 marks. Paper 3 sets the calculations and the straight-line diagram from sections 1 and 3.
Explain why the price elasticity of demand (PED) for primary commodities is generally lower than the PED for manufactured products.
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How the 10 marks are given
| Marks | What your answer needs |
|---|---|
| 9–10 | Theory fully explained, terms used correctly all the way through, the diagram included and fully explained |
| 7–8 | Theory explained, terms mostly right, the diagram included and explained |
| 5–6 | Theory partly explained, some terms, the diagram included |
| 1–4 | Theory only described or stated; few relevant terms |