Price Elasticity of Demand (PED)

    AQA
    GCSE

    Price Elasticity of Demand (PED) measures the responsiveness of quantity demanded to a change in price, ceteris paribus. Mastery requires precise calculation of coefficients using the percentage change formula, interpretation of numerical values (elastic vs. inelastic), and analysis of the relationship between PED and Total Revenue. Candidates must evaluate determinants such as substitute availability and time lags to assess market outcomes and government tax incidence.

    0
    Objectives
    4
    Exam Tips
    3
    Pitfalls
    3
    Key Terms
    4
    Mark Points

    What You Need to Demonstrate

    Key skills and knowledge for this topic

    • Award marks for accurate statement of the PED formula: % change in quantity demanded divided by % change in price
    • Credit calculation of percentage changes from raw data before applying the PED formula
    • Candidates must link the coefficient value (e.g., -0.5) explicitly to the concept of price inelasticity
    • Award marks for analysis connecting PED elasticity to Total Revenue outcomes (e.g., raising price on inelastic goods increases revenue)

    Marking Points

    Key points examiners look for in your answers

    • Award marks for accurate statement of the PED formula: % change in quantity demanded divided by % change in price
    • Credit calculation of percentage changes from raw data before applying the PED formula
    • Candidates must link the coefficient value (e.g., -0.5) explicitly to the concept of price inelasticity
    • Award marks for analysis connecting PED elasticity to Total Revenue outcomes (e.g., raising price on inelastic goods increases revenue)

    Examiner Tips

    Expert advice for maximising your marks

    • 💡Always show working for calculations; method marks are available even if the final answer is incorrect
    • 💡When evaluating, use the 'Total Revenue Test' to justify pricing strategies
    • 💡Distinguish clearly between 'elastic' (sensitive) and 'inelastic' (insensitive) using specific coefficient boundaries
    • 💡Apply the 'SPLAT' mnemonic (Substitutes, Percentage of income, Luxury, Addictive, Time) to explain determinants

    Common Mistakes

    Pitfalls to avoid in your exam answers

    • Inverting the formula (calculating % change in Price divided by % change in Quantity)
    • Confusing a decrease in demand (shift) with a change in quantity demanded (movement)
    • Asserting that price increases always lead to revenue increases, ignoring elastic demand scenarios

    Key Terminology

    Essential terms to know

    Likely Command Words

    How questions on this topic are typically asked

    Calculate
    Define
    Explain
    Analyse
    Evaluate
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