The lesson
Use the concept, then apply it to a real decision. Use this page as a fast, high-quality revision pass—not a wall of notes to memorise.
The four elasticities
PED measures the responsiveness of quantity demanded to price. PES measures the responsiveness of quantity supplied to price. YED shows how demand changes with income; XED shows the relationship between two products.
- PED = percentage change in quantity demanded ÷ percentage change in price.
- PES is usually more elastic when firms have spare capacity and time to adjust.
- YED is positive for normal goods and negative for inferior goods; XED is positive for substitutes and negative for complements.
How to evaluate an elasticity point
Avoid stopping at “demand is elastic”. Explain why it is elastic and whose decision changes as a result.
- Substitutes, necessity, habit, time and the share of income affect PED.
- For a price rise, elastic demand usually means total revenue falls; inelastic demand usually means it rises.
- Elasticity is not fixed forever: advertising, new competitors and time can change it.
Worked exam thinking
Worked example: a price rise
Prompt: A café raises price by 10% and quantity demanded falls by 20%. What should it conclude?
How to turn knowledge into marks
Use this answer route
For a focused explanation or short evaluation question on this topic:
- 1State the concept or relationship.
- 2Use the diagram, data or example accurately.
- 3Apply the impact to stakeholders.
- 4Evaluate the conditions and trade-offs.
Quick questions
Check your understanding
What does PED greater than 1 mean?
Demand is elastic: quantity demanded changes by a larger percentage than price.
Why is PES often more elastic in the long run?
Firms have more time to train workers, expand capacity, switch inputs or enter the industry.
Does a negative PED mean demand is bad?
No. Demand normally slopes downwards, so PED is negative by convention. Discuss the absolute value when classifying elasticity.