Price Elasticity of Demand (PED)
Elasticities of Demand
AO2·AO4·Diagram required
Syllabus requirement
Measures the responsiveness of quantity demanded to a change in price.
Assessment objectives
AO2 Application and AnalysisAO4 Use of Appropriate Skills
Required diagram: Diagrams showing perfectly inelastic (vertical), perfectly elastic (horizontal), and unitary elastic demand curves (rectangular hyperbola), as well as relative elasticity cases.
Summary
Price elasticity of demand (PED) measures how much the quantity demanded of a product responds to a change in its own price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price; values greater than 1 indicate elastic demand and values less than 1 indicate inelastic demand. Understanding PED helps predict revenue effects of price changes and explains consumer responsiveness given substitutes and necessity status.
