The lesson
Understand the Topic and answer the multiple-choice question. Use this page as a fast, high-quality revision pass—not a wall of notes to memorise.
Demand, supply and equilibrium price
The market system resolves the basic economic problem. Price adjustments ensure quantity demanded equals quantity supplied.
- Demand is the willingness and ability to buy. An increase in price causes a contraction of demand.
- Supply is the willingness and ability of producers to sell. Rising costs shift supply to the left.
- Equilibrium price is the market-clearing price where there is no shortage or surplus.
Price elasticity of demand (PED)
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price, showing whether demand is elastic, inelastic, or unit elastic.
- PED = % change in quantity demanded ÷ % change in price.
- Demand is elastic if PED > 1 (e.g. luxury goods with many substitutes).
- Demand is inelastic if PED < 1 (e.g. basic necessities with no close substitutes).
Worked exam thinking
Worked example: price elasticity calculation
Prompt: A price rises by 10% and quantity demanded falls by 5%. Calculate PED and state its elasticity.
How to turn knowledge into marks
Use this answer route
For a focused explanation or short evaluation question on this topic:
- 1State the definition or concept.
- 2Follow the transmission link.
- 3Apply it to the exam scenario.
- 4Choose the correct option.
Quick questions
Check your understanding
What shifts the demand curve?
Changes in income, tastes, advertising, population, and prices of substitute or complementary goods.
What is a shortage?
When quantity demanded exceeds quantity supplied at a given price, putting upward pressure on price.
Why do complementary goods have negative XED?
Because when the price of one good rises, demand for its complement falls (e.g. gaming consoles and games).