Demand tells a business how many units it can sell. Elasticity tells it how much that number moves when price or income changes.
If I raise my price, will I earn more money or less?
Demand is the quantity customers will buy at a given price. PED measures how far quantity demanded responds to a price change, and YED how far it responds to an income change. Inelastic demand means a price rise lifts revenue. Elastic demand means it cuts revenue. A positive YED marks a normal good; a negative YED marks an inferior good.
Year 12 (7137/7138): This is AS (the first-year qualification) content in unit 3.1.3, so you learn it now. It can appear in AS Paper 1 in 2027 and in A-level Paper 1 in 2028. PED and YED are sophisticated concepts, so accurate use earns credit.
Year 13 (7132, June 2027): Elasticity is partly covered in 7132 section 3.3 (marketing decisions), so check your own specification and notes for how far it goes. The formulae and interpretation here are standard. Use this page to sharpen the revenue rules and the evaluation points, because 7132 papers also reward judgement.
Demand is the quantity of a product that customers are willing and able to buy at a given price, in a given period. A demand curve slopes down because a lower price usually means a higher quantity demanded.
A change in the product's own price moves you along the demand curve. A change in any other influence shifts the whole curve. This difference matters in exams because it tells you which concept to use.
Always link the influence to the business in the case study. A bakery depends on weather and footfall. A car maker depends more on income and interest rates.
Price elasticity of demand (PED) measures how responsive quantity demanded is to a change in price. Income elasticity of demand (YED) measures how responsive it is to a change in income. Both are sophisticated concepts, so use them accurately.
PED is usually negative, because price and quantity move in opposite directions. Most students judge it by size, ignoring the sign.
| PED (size) | Description | Price rise | Price cut |
|---|---|---|---|
| Below 1 | Price inelastic | Revenue rises | Revenue falls |
| Equal to 1 | Unit elastic | Revenue unchanged | Revenue unchanged |
| Above 1 | Price elastic | Revenue falls | Revenue rises |
The logic is simple. Revenue is price multiplied by quantity. With inelastic demand, quantity falls by a smaller percentage than price rises, so revenue goes up.
| YED | Type of good | When income rises |
|---|---|---|
| Positive, above 1 | Normal, income elastic (luxury) | Quantity demanded rises by a bigger percentage |
| Positive, 0 to 1 | Normal, income inelastic (necessity) | Quantity demanded rises by a smaller percentage |
| Negative | Inferior good | Quantity demanded falls |
A negative YED means customers trade up to something better as they earn more. Some budget own-label lines may show negative YED, so test this with real data rather than assuming it.
Illustrative figures: a cafe raises a sandwich from £2.00 to £2.20, a 10% rise. Weekly sales fall from 1,000 to 960, a 4% fall.
Demand is inelastic, so revenue rises by £112. If sales had fallen to 800 (a 20% fall), PED would be −2. Revenue would be £2.20 × 800 = £1,760, so it falls.
Illustrative figures for YED: incomes rise 5% and sales of a restaurant meal rise 10%. YED = 10% / 5% = +2, so it is a luxury. If sales of a budget ready meal fall 3%, YED = −3% / 5% = −0.6, so it is inferior.
Greggs is a UK food-to-go chain. In 2025 its total sales were £2,151 million, and like-for-like sales (sales in shops open for over a year) in company-managed shops rose 2.4%.[1] Hargreaves Lansdown, an investment platform, said price rises had been the main driver of that like-for-like growth. It added that Greggs must ensure increases do not exceed customer appetite.[2]
That warning is a PED judgement. If demand for a sausage roll is inelastic, a small rise lifts revenue. If it is elastic, customers walk to a rival and revenue falls.
Ryanair, the Irish low-cost airline, shows the trap in using data carelessly. In its year to March 2026, traffic grew 4% to over 208 million passengers while average fares rose 10%.[3] Price and quantity rose together, so demand itself was moving. You cannot work out PED from that.
The year before, fares had fallen 7%, and traffic had grown 9% to 200.2 million.[4,5] A crude ratio gives about −1.3. Yet capacity, tastes and the economy also changed, so other things did not stay equal.
Evaluation means judging how far a conclusion holds. For elasticity, ask what the value depends on and how reliable it is.
A good judgement names the factor that matters most in this case, and explains why, so the reader sees a reasoned choice.
Every AQA Business question uses one of five command words, each with a fixed mark tariff, and quantitative questions sit inside the 9 and 15-mark formats. The A-level papers have no 2 or 4-mark questions. Open each format to see how this topic appears in it. All questions here are original Curriculum Circle practice questions, not board questions.
On this topicYou state what PED or YED means in one precise sentence, with the formula idea.
What earns the marksAO1 only: accurate knowledge of the term.
CC practice questionDefine 'price elasticity of demand'. (2 marks)
On this topicYou explain one influence on demand, or one effect of a price change, and tie it to the business named.
What earns the marksAO1 for the concept and AO2 for applying it to the context.
CC practice questionExplain one reason why demand for a village bakery's sourdough loaves might be price inelastic. (4 marks)
On this topicYou build a chain: PED value, then the change in quantity, then the effect on revenue, using the case figures.
What earns the marksAO1, AO2 and AO3: knowledge, application and a developed chain of reasoning.
CC practice questionAnalyse how a PED of −1.8 could affect the revenue of a gym that raises its monthly fee. (6 marks)
On this topicYou weigh arguments for and against a price change given the likely PED, then reach a judgement.
What earns the marksAO1 to AO4: the final judgement must say what it depends on.
CC practice questionAssess whether a cinema chain should raise ticket prices, given that demand for tickets is thought to be price elastic. (9 marks)
On this topicYou compare two options, such as raising prices or cutting costs, use PED and YED evidence, and recommend one.
What earns the marksAO1 to AO4: a justified recommendation using both numbers and context.
CC practice questionEvaluate whether a coffee chain should raise prices by 8% or launch a loyalty scheme instead, to improve profit over the next year. (15 marks)
On this topicYou calculate PED or YED and the change in revenue, then use the result to support a judgement. In the case study, price and sales tables supply the data.
What earns the marksAO1 and AO2 for correct calculation and application, then AO3 and AO4 for what the figure means.
CC practice questionIllustrative figures: a firm raises its price from £3.00 to £3.30 and weekly sales fall from 20,000 to 17,000. Calculate PED and the change in revenue, then assess whether the rise was wise. (9 marks)
| Weight | What it is | What it means on demand, ped and yed | |
|---|---|---|---|
| AO1 | 32.5% AS · 24.44% A-level | Knowledge and understanding of terms, concepts, theories, methods and models | State the formulae exactly and know the meaning of elastic, inelastic, normal and inferior. |
| AO2 | 27.5% AS · 24.44% A-level | Application to the business context in the case study | Use the product, customers and rivals in the extract. A generic reference to 'luxuries' earns little. |
| AO3 | 20% AS · 26.66% A-level | Analysis of issues and their impact on individuals and organisations | Chain the values to the outcome: PED, then quantity, then revenue, using 'because' and 'so'. |
| AO4 | 20% AS · 24.44% A-level | Evaluation of quantitative and qualitative information to make judgements | Judge how reliable the elasticity is, and whether revenue or profit is the right test. |
Weightings are approximate and taken from the AQA AS 7137 and A-level 7138 specification [0].
Hartley's Bakes, a regional bakery chain, can raise all prices by 8% or keep prices and cut costs through cheaper ingredients. Evaluate which option it should choose. (15 marks)
If demand for Hartley's products is inelastic, an 8% rise causes a smaller percentage fall in sales, so revenue rises. This is likely for daily bread because customers buy from habit. If demand is elastic, the same rise cuts sales by more than 8%, so revenue falls.
Raising prices is the stronger option only if customers lack nearby substitutes, because supermarkets sell cheaper bread. Cheaper ingredients avoid the PED risk, but they may harm quality, so brand loyalty and future demand could weaken. I would recommend a smaller price rise on loyal-customer lines, because the evidence on elasticity is only an estimate and the cost of being wrong is high.
Greggs reported that like-for-like sales in company-managed shops rose 2.4% in 2025, with total sales of £2,151 million.[1] Hargreaves Lansdown said price rises had been the main driver of that growth and that increases must not exceed customer appetite.[2]
In its year to March 2026, Ryanair's traffic grew 4% to over 208 million passengers while average fares increased 10% to about €51.[3] Fares and traffic rising together points to a shift in demand, so PED cannot be read from these figures.
Ryanair's results for the year to March 2026 described its 10% fare rise as recovering the previous year's 7% fare decline.[4] In the year to March 2025 its traffic grew 9% to 200.2 million passengers.[5] A simple ratio suggests elastic demand, but other factors changed, so it is only a rough guide.
Everything above is the topic page. The pieces below take it further. Each one trains a particular assessment objective rather than covering the topic again, and they are added over the year.
Figures and facts were checked against these sources on 2 November 2026. Worked numbers labelled "Illustrative figures" are invented for teaching.
The CC Business revision platform has more PED and YED practice with Criterion Marking Engine feedback, and the Inner Academy's recorded lessons walk through each calculation.
See the Business platformThe Inner Academy