Price Elasticity of Demand

Calculator, types & determinants — A-Level Economics

PED Calculator

PED = % change in quantity demanded ÷ % change in price

PED is always negative (law of demand) — we often use the absolute value

Enter values and click calculate

Types of Elasticity

Elastic

|PED| > 1

Demand is responsive to price changes. A small price rise causes a large fall in Qd.

Inelastic

|PED| < 1

Demand is unresponsive. Price changes have little effect on Qd.

Unit Elastic

|PED| = 1

% change in Qd equals % change in price. Total revenue unchanged.

Perfectly Elastic

|PED| = ∞

Horizontal demand curve. Any price rise = zero demand. Perfect competition.

Perfectly Inelastic

|PED| = 0

Vertical demand curve. Quantity demanded doesn't change with price. E.g., life-saving drugs.

Factors Affecting PED

Availability of substitutesMore substitutes → more elastic. Consumers can switch easily if price rises. E.g., butter vs. margarine.
Necessity vs luxuryNecessities (bread, insulin) are inelastic — people buy them regardless. Luxuries (holidays) are elastic.
Proportion of incomeItems taking a larger share of income (cars, rent) tend to be more elastic. Small purchases (salt) are inelastic.
Time periodDemand tends to be more elastic in the long run — consumers have time to find alternatives or change habits.
Brand loyaltyStrong brand loyalty (Apple, Nike) makes demand more inelastic — loyal customers accept price increases.
AddictivenessAddictive goods (cigarettes, coffee) are price inelastic — consumers continue buying despite price rises.

PED & Total Revenue

Understanding PED helps firms make pricing decisions.

Elastic demand (|PED| > 1)Price ↑ → TR ↓ (the fall in Qd outweighs the price rise)
Price ↓ → TR ↑ (firms should cut prices to increase revenue)
Inelastic demand (|PED| < 1)Price ↑ → TR ↑ (Qd falls by less than price rises)
Price ↓ → TR ↓ (firms should raise prices to increase revenue)
Exam tip: A common 8-12 mark question is "Evaluate whether a firm should raise its price." Use PED to argue: if demand is inelastic, raising price increases TR. But consider long-run effects — brand damage, competitor entry, consumer switching. Always evaluate both sides.