Price elasticity of demand (PED) measures how strongly buyers react to a change in the price. The school canteen raises the price of a sandwich from €4 to €5. Sales fall from 100 to 70 a day. How strongly did buyers react?
Calculate PED in three steps
% change in quantity demanded
(70 − 100) ÷ 100 × 100 = −30%
% change in price
(5 − 4) ÷ 4 × 100 = +25%
Divide: quantity over price
PED = −30 ÷ 25 = −1.2: elastic, a strong 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).
See how examiners mark answers
Answer exam-style questions with model answers. Learn exactly what earns marks and what doesn't.
Three demand curves have the same PED all along them. You need to draw all three.
Animated graph
Watch the graph build step by step in study mode.
The points to remember
- Vertical curve: PED = 0, perfectly inelastic.
- Horizontal curve: PED = ∞, perfectly elastic.
- Unitary curve: PED = 1 everywhere; spending (price × quantity) never changes.
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.
Remember it as: Substitutes, necessity, share of income, time: SNIT.
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Paper 1 asked this in November 2023, as part (a) for 10 marks. Paper 2 sets the definitions and calculations from sections 1 and 2.
Explain how the availability of substitutes for a good and whether a good is a necessity affect its price elasticity of demand.
Model answer plan
See the answer broken into clear points, with guidance on how each point earns marks.
Animated graph
Watch the graph build step by step in study mode.
What the diagram must show
- Axes P and Q; two demand curves through the same point P1, Q1.
- The flatter curve labelled elastic, the steeper one inelastic.
- The same rise P1 → P2, with a small fall in Q on one and a big fall on the other.
How the 10 marks are given
| Marks | What your answer needs |
|---|---|
| 9–10 | Both parts fully explained, terms used correctly all the way through, the diagram included and fully explained |
| 7–8 | Both parts explained, terms mostly right, the diagram included and explained |
| 5–6 | Partly explained, some terms, the diagram included |
| 6 at most | Only one of the two parts answered, however good it is |