Almost every candidate can state the formula. Rather fewer can say what the number means, and fewer still can use it to explain what happens to a firm's revenue — which is the part the board actually rewards. PED is not a fact to recall; it is a tool for predicting a consequence. This page covers what it is, the diagram, and the four places marks are lost.
Why does a streaming service raise its price every year and barely lose anyone?
The economics does not change between boards; the reference number and the exam style do. This page is written to the concept, so it is the same page whichever specification you are sitting — find your own line below.
| Specification | Reference | Where it is examined |
|---|---|---|
| AQA A-Level Economics 7136 | 4.1.3.2 | Paper 1 short answers and 25-mark essays; Paper 3 data response and multiple choice |
| Edexcel A Economics 9EC0 | 1.2.3 | Theme 1, Paper 1; returns synoptically in Paper 3 |
| Edexcel A AS Economics 8EC0 | 1.2.3 | Theme 1, Paper 1 |
| Pearson Edexcel IAL Economics | WEC11 · Unit 1 | Markets in action — data response and essay |
Price elasticity of demand measures how responsive quantity demanded is to a change in price. It is a ratio of two percentage changes, which is what makes it a unitless number and therefore comparable across completely different markets — you can put the PED of insulin next to the PED of a particular brand of crisps and the comparison means something.
| Value | Name | What it means in practice |
|---|---|---|
| 0 | Perfectly inelastic | Quantity does not move at all. A vertical demand curve. Almost nothing is genuinely here. |
| between 0 and 1 | Inelastic | Quantity moves proportionately less than price. Necessities, addictive goods, things with no substitute. |
| 1 | Unit elastic | The two percentage changes are equal. Total revenue is unchanged, and at its maximum. |
| above 1 | Elastic | Quantity moves proportionately more than price. Luxuries, and anything with close substitutes. |
| infinite | Perfectly elastic | A horizontal demand curve. The individual firm's demand curve under perfect competition. |
The diagram is not decoration. Drawn correctly it is the analysis, because the change in the shaded revenue rectangle answers the question for you. Below: the same fall in price on an inelastic and an elastic demand curve, with total revenue shaded.
PED appears at every tariff on the paper, from a two-mark calculation to a twenty-five mark essay where it is the analytical engine rather than the subject. Knowing which version you are being asked for is half the skill.
| Question type | What is being tested | What gets the marks |
|---|---|---|
| Calculate (2–4) | Whether you can apply the formula and interpret the result | Show the working, state the value, then add one clause of interpretation. The interpretation is usually the second mark and it is the one most often dropped. |
| Explain (4–6) | Whether you can build a causal chain | Link a determinant to the elasticity, and the elasticity to a consequence. Two links, not one. |
| Data response (9–15) | Whether you use the extract's own numbers | Quote the figure from the extract and use it. An answer that could have been written without reading the extract is capped low regardless of quality. |
| Essay (25) | Whether elasticity informs your evaluation | PED is rarely the question; it is the reason your answer to the question depends on circumstances. "The effect of the tax depends on the elasticity of demand, because…" is the sentence that earns AO4. |
Application is worth more marks than knowledge on this specification — AO2 carries 26–29% against AO1's 20–23%. So the examples are not decoration. They are where a third of the paper lives, and the ones that earn are the ones specific enough to be checked.
Streaming services have raised prices repeatedly and lost far fewer subscribers than the model predicts, because switching means abandoning what you were halfway through.
The sugar tax changed recipes rather than prices, which is a manufacturer reading its own elasticity correctly and acting on it.
Rail fares rise every January because commuters have no substitute before nine in the morning and plenty of them after it.
Each of these becomes a full piece in its own right, in the branches below. What is here is the hook; the argument, the data and the essay application are what the pieces are for.
Every question on this specification is marked against four assessment objectives, and they are not weighted equally. Most revision treats a topic as a body of knowledge; the paper treats it as four separate skills applied to that knowledge. This topic is examined as a calculate and interpret topic, so here is what each objective looks like on it specifically.
| Weight | What it is | What it means on price elasticity of demand | |
|---|---|---|---|
| AO1 | 20–23% | Knowledge and understanding of terms, concepts, theories and models | Define the measure and state the formula. It is one mark and it is the one nobody should lose. |
| AO2 | 26–29% | Application of that knowledge to economic contexts | Use the figures in front of you. An answer that could have been written without reading the extract is capped low, however good the economics is. |
| AO3 | 26–29% | Analysis of issues and their impact on economic agents | Work the consequence through. The number is not the answer — what it implies for revenue, output or welfare is. |
| AO4 | 22–25% | Evaluation of arguments, using evidence to support a judgement | Say what the result depends on: the time period, the range of the data, and whether the relationship still holds at a different price. |
Everything above is the anchor — what the thing is and how it is examined. Each piece below is built to train one assessment objective rather than to cover the topic again, and they accumulate. Nothing on this page gets deleted; it gets added to.
Most lost marks on this topic are drawing marks, not knowledge marks. The platform drills the diagram until it is automatic; the Academy marks your written answers against the framework examiners use.
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