The lesson
Explain the mechanism, then qualify the outcome. Use this page as a fast, high-quality revision pass—not a wall of notes to memorise.
PED in one clear chain
Price elasticity of demand measures how strongly quantity demanded responds to a price change.
- PED = percentage change in quantity demanded ÷ percentage change in price.
- Demand is elastic when the absolute value is greater than 1; it is inelastic when the absolute value is below 1.
- The negative sign reflects the usual inverse relationship between price and quantity demanded.
Why elasticity matters
A useful answer connects the number to a decision, rather than simply labelling demand.
- With elastic demand, a price rise usually reduces total revenue because quantity falls proportionately more.
- Close substitutes, a large share of income, habit, necessity and time affect PED.
- For indirect taxes, inelastic demand usually means consumers bear a larger share of the price increase.
Worked exam thinking
Worked example: revenue after a price rise
Prompt: A cinema raises ticket prices by 8% and quantity demanded falls by 16%. What is PED and what happens to revenue?
How to turn knowledge into marks
Use this answer route
For a focused explanation or short evaluation question on this topic:
- 1Define the core idea precisely.
- 2Explain the chain of cause and effect.
- 3Apply it to the context in the question.
- 4Evaluate a limitation, trade-off or condition.
Quick questions
Check your understanding
What does PED of −0.4 mean?
Demand is price inelastic: a 1% price rise is associated with a 0.4% fall in quantity demanded.
Why does PED have a negative sign?
Price and quantity demanded normally move in opposite directions. Examiners usually classify PED using the absolute value.
Can PED change?
Yes. More time, new substitutes, advertising or a change in consumers’ incomes can make demand more or less responsive.