Elasticity measures how much one thing responds when another changes.
Price elasticity of demand (PED): how responsive the quantity demanded of a product is to a change in its own price.
PED = % change in quantity demanded ÷ % change in price. Quantity goes on top.
PED is negative because price and quantity demanded move in opposite directions (the law of demand): a price rise means a fall in quantity demanded, and a price cut means a rise.
PED is about movements along a demand curve, caused by the product's own price. It is not about shifts.
Exam tipA neat way to remember the formula: Q comes before P in the alphabet, and quantity goes on top. Turning the formula upside down was the commonest error in AQA's PED questions.
Price elasticity of demand (PED)
How responsive quantity demanded is to a change in the product's own price: % change in quantity demanded ÷ % change in price.
3.1.3.5
Calculating PED (and keeping the minus sign)
Step 1: % change in quantity demanded = (new − original) ÷ original × 100.
Step 2: % change in price = (new − original) ÷ original × 100.
Step 3: PED = step 1 ÷ step 2. One of the two changes is negative, so the answer is negative.
Always divide by the original value. Round as the question asks (AQA often uses 2 decimal places).
Working backwards: % change in quantity demanded = PED × % change in price. With PED −0.4 and a 15% price rise, quantity demanded falls by 0.4 × 15 = 6%.
Worked exampleA cinema (invented) cuts its ticket price from £10 to £9. Tickets sold each week rise from 2,000 to 2,400. Calculate the PED.
% change in quantity demanded = (2,400 − 2,000) ÷ 2,000 × 100 = +20%Divide by the original quantity.
% change in price = (9 − 10) ÷ 10 × 100 = −10%Divide by the original price.
PED = +20% ÷ −10% = −2Quantity on top. The answer is negative.
PED = −2 (price elastic)
Worked examplePED for a brand of trainers is −1.5. The price rises by 6%. By how much does quantity demanded change?
% change in quantity demanded = PED × % change in price
= −1.5 × 6
−9%: quantity demanded falls by 9%
Exam tipAQA's mark schemes give 1 mark out of 2 for a PED with no minus sign (for example 1.25 instead of −1.25). Some videos say you can ignore the sign: in this exam, don't.
3.1.3.5
Elastic, inelastic and unit elastic demand
Price elastic demand: PED is beyond −1 (between −1 and −∞), such as −2.5. Ignoring the sign, it is greater than 1. Quantity demanded changes by a bigger percentage than price.
Price inelastic demand: PED is between 0 and −1, such as −0.3. Quantity demanded changes by a smaller percentage than price.
Unit elastic: PED = −1. Quantity changes by the same percentage as price.
On a diagram, inelastic demand is drawn steep and elastic demand flat. AQA hasn't yet asked students to draw these, but they help explain answers.
Saying what a PED value means: ‘PED of −0.5 means a 10% rise in price leads to a 5% fall in quantity demanded: demand is price inelastic.’
The PED scale: inelastic between 0 and −1, elastic beyond −1
Steep (inelastic) and flat (elastic) demand, with the same price rise
Exam tipAQA's own vocabulary list says elastic demand is ‘greater than −1’. That is a slip: −0.5 is greater than −1 but inelastic. Learn it as beyond −1, or more than 1 ignoring the sign.
Price elastic demand
PED beyond −1: quantity demanded changes by a bigger percentage than price.
Price inelastic demand
PED between 0 and −1: quantity demanded changes by a smaller percentage than price.
Unit elastic demand
PED of exactly −1: quantity demanded changes by the same percentage as price.
3.1.3.5
What makes demand elastic or inelastic
The most important factor is usually substitutes: if buyers can switch easily, they will.
A brand has more elastic demand than the product in general. Demand for petrol is inelastic, but demand for petrol at one filling station is elastic, because the next one is a substitute.
These factors decide the slope of the demand curve. They are not the factors that shift it (income, tastes, advertising and so on).
Factor
More inelastic when…
More elastic when…
Substitutes
there are few close substitutes (tap water, a prescribed medicine)
there are many close substitutes (one brand of crisps)
Necessity, luxury or habit
it is a necessity or habit-forming (bread, cigarettes, electricity)
it is a luxury that people can cut back on (a designer handbag)
Share of income
it takes a small share of income (salt, matches)
it takes a big share of income (a car, a kitchen)
Time
the time period is short: buyers can't change habits quickly
the time period is long: buyers find alternatives
Exam tipIn June 2023 more than one student in ten scored 0 on a 6-mark question for saying bread was price elastic and cars price inelastic. Check: necessity and small share of income → inelastic; luxury and big share of income → elastic.
Substitute
A product that can be used instead of another.
Necessity
Something people feel they must buy whatever the price.
3.1.3.5
PED, total revenue and what it means for producers and consumers
Total revenue = price × quantity (see Costs, Revenue, Profit and Productivity). PED tells a firm what a price change will do to its revenue.
Producers with inelastic demand can raise prices to increase revenue; with elastic demand, they may cut prices (sales, discounts) to win customers.
Consumers of products with inelastic demand (such as energy) carry more of the burden when prices rise, because they cannot easily cut back. Households on low incomes feel this most.
Indirect taxes: governments raise most revenue from taxes on goods with inelastic demand (fuel, tobacco, alcohol), but those taxes change behaviour less. This links to Market Failure and Government Intervention.
Firms don't know their PED exactly: estimates change over time, and rivals may react.
Demand is…
Raise the price
Cut the price
Price inelastic
Total revenue rises (quantity falls by a smaller %)
Total revenue falls
Price elastic
Total revenue falls (quantity falls by a bigger %)
Total revenue rises
The same £1 price rise: revenue rises with inelastic demand and falls with elastic demand (invented numbers)
Worked exampleA café sells 300 smoothies a day at £3. Demand is price inelastic (PED −0.5). It raises the price by 10%. What happens to daily revenue?
Revenue before = £3 × 300 = £900.
New price = £3.30. % change in quantity = −0.5 × 10% = −5%, so quantity = 285.
Revenue after = £3.30 × 285 = £940.50.
Revenue rises by £40.50 a day
Exam tipDon't stop at ‘demand is inelastic, so revenue rises’. Explain the step: the % fall in quantity demanded is smaller than the % rise in price, so price × quantity goes up.
3.1.3.6
Price elasticity of supply: meaning and calculation
Price elasticity of supply (PES): how responsive the quantity supplied is to a change in price.
PES = % change in quantity supplied ÷ % change in price.
PES is positive: price and quantity supplied move in the same direction, because a higher price means higher potential profit, so firms want to supply more.
Use the same steps as PED: two % changes from the original values, then quantity ÷ price.
Worked exampleA printing firm (invented) is offered £12 instead of £10 for each printed T-shirt. It raises the number it supplies each week from 500 to 650. Calculate the PES.
% change in quantity supplied = (650 − 500) ÷ 500 × 100 = +30%Original quantity is 500.
% change in price = (12 − 10) ÷ 10 × 100 = +20%Original price is £10.
PES = 30 ÷ 20 = 1.5Positive: price and quantity supplied both rose.
PES = 1.5 (price elastic supply)
Exam tipRead the question twice: is it asking for supply or demand? In June 2025 the most common mark on a PES question was 0, because students wrote about PED.
Price elasticity of supply (PES)
How responsive quantity supplied is to a change in price: % change in quantity supplied ÷ % change in price.
3.1.3.6
Elastic and inelastic supply
Price elastic supply: PES greater than 1. Quantity supplied changes by a bigger percentage than price.
Price inelastic supply: PES between 0 and 1. Quantity supplied changes by a smaller percentage than price.
Unit elastic supply: PES of exactly 1. Quantity supplied changes by the same percentage as price, so it is neither elastic nor inelastic.
Inelastic supply is drawn steep; elastic supply is drawn flat.
Example: a 20% rise in price and a 6% rise in quantity supplied gives PES = 6 ÷ 20 = 0.3: inelastic.
Steep (inelastic) and flat (elastic) supply, with the same price rise
Price elastic supply
PES greater than 1: quantity supplied changes by a bigger percentage than price.
Price inelastic supply
PES between 0 and 1: quantity supplied changes by a smaller percentage than price.
3.1.3.6
What makes supply elastic or inelastic
Farm products are inelastic in the short run: once a crop is planted, the harvest can't be increased until next season, and the weather matters.
Manufactured goods with spare factory capacity and stock in warehouses tend to have elastic supply.
Factor
More elastic supply when…
More inelastic supply when…
Spare capacity
firms have idle machines, space or staff with spare hours
firms are already working flat out
Stocks
goods or materials are stored and can be released quickly
the product can't be stored (fresh flowers, concert seats)
Time
the time period is long: firms can hire, build and invest
the time period is short, or production takes a long time (crops, new houses)
Ease of switching
resources can switch easily from other products
production needs specialist equipment or skilled workers
Exam tipThe factors for PES are about the producer's ability to change output. ‘There are lots of substitutes’ is a PED factor and earns nothing on a PES question.
Spare capacity
When a firm could produce more with the resources it already has.
3.1.3.6
Why PES matters for producers and consumers
When supply is inelastic and demand rises, the price rises a lot but quantity rises only a little. Consumers pay much more.
Housing: new homes take years to plan and build, so supply is very inelastic. When demand rises, house prices rise sharply.
Crops: supply can't respond until the next harvest, so a rise in demand or a poor harvest causes big price swings for consumers and uncertain incomes for farmers.
Concerts and sports events: a venue has a fixed number of seats, so supply is perfectly fixed on the night. Extra demand only pushes up prices (and resale prices).
When supply is elastic, firms can expand output quickly and gain extra sales when prices rise, so prices stay steadier for consumers.
Producers try to make supply more elastic: holding stock, keeping spare capacity and training staff in several jobs.
Inelastic supply: a rise in demand mainly raises the price
Exam tipLink PES to a reason and a consequence: ‘Houses take years to build (time), so supply is inelastic, so a rise in demand mostly raises prices rather than the number of homes.’
3.1.3.5, 3.1.3.6
Common elasticity errors
Formula upside down: price ÷ quantity. It is quantity ÷ price.
Missing minus sign on PED: costs a mark. PES has no minus sign.
Wrong denominator: % change must be worked out from the original value.
Using the changes, not the % changes: you must turn both into percentages first.
Elastic and inelastic swapped: necessities are inelastic; luxuries with many substitutes are elastic.
PED factors given for PES (or the reverse).
Shift factors given as elasticity factors: income and advertising shift demand; they don't decide how elastic it is.
‘Demand falls’: say ‘quantity demanded falls’, because PED is about movements along the curve.
Exam tipSense-check your answer. If a price rose and quantity demanded fell, the PED must be negative. If the % change in quantity is smaller than the % change in price, the value must be between 0 and −1.
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