Price elasticity of demand (A Level Economics) is the first calculation every board sets, and the idea behind half the evaluation marks in the paper. Elasticity measures how much a quantity responds when something changes. PED is the response of demand to price. YED is the response to income. XED is the response to another good’s price. PES is the response of supply to price. This page gives you the four formulas, what the numbers mean, the two diagrams the exam wants, the revenue rule, the determinants, a worked example in pounds and three exam-style questions with the answers derived.
Spec map: where elasticity sits on your board
| Board | Where it sits | Papers that test it |
|---|---|---|
| AQA 7136 | 4.1.3.2 calculate and interpret PED, YED and XED; YED and normal or inferior goods; XED and substitutes or complements; PED and total revenue; the factors behind each. 4.1.3.4 calculate and interpret PES and its factors | Paper 1, Paper 3 |
| Edexcel 9EC0 | Theme 1: 1.2.3 the three demand elasticities, their formulas, values, factors, and their significance for firms and government (indirect taxes and subsidies, real income, substitutes and complements), plus PED and total revenue with calculation. 1.2.5 PES, its formula, values, factors, and short run versus long run | Paper 1, Paper 3 |
| OCR H460 | Component 01, 2.6: explain and calculate PED, YED, XED and PES; explain with a diagram the different values and the link between PED and total revenue; evaluate the determinants and the usefulness of each | Component 01, Component 03 |
| Cambridge International 9708 | AS Level 2.2 (PED, YED, XED) and 2.3 (PES) | Papers 1 and 2 |
Checked in September 2026 against AQA’s specification (v1.3), Edexcel’s (Issue 2), OCR’s (v3.0) and the Cambridge syllabus for 2026-2028.
What you must be able to do
- Write all four formulas from memory, the right way up.
- Calculate PED, YED, XED and PES from percentage changes, and rearrange a formula to find a missing quantity.
- Interpret the number: elastic, inelastic, unit, perfectly elastic, perfectly inelastic.
- Interpret the sign: normal or inferior for YED, substitute or complement for XED.
- Draw an elastic and an inelastic demand curve through the same point.
- Use PED to predict what a price change does to total revenue.
- Explain the factors behind each elasticity, and why PES rises over time.
The four formulas: PED, YED, XED and PES
Every formula has the same shape. The thing that responds goes on top. The thing that changed goes underneath. Get that order wrong and the whole answer is wrong.
| Elasticity | Formula | Sign | What the size means |
|---|---|---|---|
| PED, price elasticity of demand | % change in quantity demanded ÷ % change in price | Negative (price up, demand down). Boards accept the minus sign or ignore it, but the size is what you interpret | Bigger than 1: elastic. Less than 1: inelastic. Exactly 1: unit elastic. 0: perfectly inelastic. Infinite: perfectly elastic |
| YED, income elasticity of demand | % change in quantity demanded ÷ % change in income | Positive for a normal good, negative for an inferior good | Above 1: a luxury. Between 0 and 1: a necessity. Below 0: inferior |
| XED, cross elasticity of demand | % change in quantity demanded of good A ÷ % change in price of good B | Positive for substitutes, negative for complements, zero if unrelated | The bigger the number, the closer the relationship |
| PES, price elasticity of supply | % change in quantity supplied ÷ % change in price | Positive (price up, supply up) | Bigger than 1: elastic. Less than 1: inelastic. 0: perfectly inelastic, a fixed stock |
Key terms: Elastic means responsive. Inelastic means unresponsive. The word on its own is never enough for the mark. Give the number, then the word: “PED is −0.4, so demand is price inelastic”.
PED: elastic and inelastic demand on one diagram
The exam’s favourite diagram draws two demand curves through the same starting point and applies the same price rise to both. The steep one barely moves. The flat one collapses.
Read the numbers off it. Price rises 20%, from £40 to £48. On the inelastic curve quantity falls 10%, from 20 to 18, so PED is −10 ÷ 20 = −0.5. On the elastic curve quantity falls 80%, from 20 to 4, so PED is −80 ÷ 20 = −4. Now the revenue. At the start both curves earn £40 × 20 = £800. After the rise the inelastic curve earns £48 × 18 = £864, up £64. The elastic curve earns £48 × 4 = £192, down £608. Same price rise, opposite result. That is the whole of the revenue rule, and it comes straight from the diagram.
Mark scheme: For the diagram marks in price elasticity of demand A Level questions the examiner wants both axes labelled, both curves through the same point, the price rise marked on the axis, and the two new quantities projected down. Label the curves “D elastic” and “D inelastic”. Two curves with no numbers is knowledge. Two curves with the percentages worked out is application and analysis.
PED and total revenue: the rule, and why it changes along the curve
| If PED is | Raise the price and revenue | Cut the price and revenue | Who behaves like this |
|---|---|---|---|
| Elastic (bigger than 1) | Falls | Rises | A cinema with a Netflix account waiting at home, a bus company competing with cheap petrol |
| Inelastic (less than 1) | Rises | Falls | Energy under the price cap, the only sixth-form canteen, addictive goods |
| Unit elastic (exactly 1) | No change | No change | The midpoint of a straight-line demand curve |
The rule has a catch that examiners love. A good is not simply “elastic” or “inelastic”. On a straight-line demand curve PED changes at every point. It is elastic near the top, where price is high and quantity is small, and inelastic near the bottom.
The bus company earns the same £270 at A and at B. Between them, at M, it earns £360, the most the fares can raise. So the firm at A should cut its price and the firm at B should raise it. Both moves head for M. That is why the mark scheme says “revenue is maximised where PED is unit elastic”.
Exam tip: When a question gives you a table of prices and quantities, calculate total revenue for every row before you calculate PED. The revenue column tells you which way elasticity goes, and it checks your PED answer for free.
What decides PED
| Factor | Makes demand more elastic when | UK example |
|---|---|---|
| Substitutes | There are many close ones | Netflix versus Disney+; one brand of trainers versus another |
| Share of income | The good takes a big slice of the budget | A car, a holiday, student rent |
| Necessity or luxury | The good is a luxury you can drop | Meals out, festival tickets |
| Time | Buyers have had time to find alternatives | Petrol: inelastic this month, more elastic over five years |
| Habit or addiction | Weak habit, no addiction | Cigarettes and vapes are inelastic for this reason |
| Brand loyalty | Loyalty is weak | Own-brand cola versus Coca-Cola |
YED and XED: read the sign first, then the size
Incomes rise 10%. Bookings for foreign holidays rise 20%, so YED is +2. Holidays are a luxury. Bread sales rise 2%, so YED is +0.2. Bread is a normal good and a necessity. Sales of own-brand beans fall 5%, so YED is −0.5. Own-brand beans are inferior: as people get richer they switch away.
Now XED. Greggs puts its sausage roll up 10% and sales of the supermarket’s own version rise 5%. XED is +5 ÷ +10 = +0.5. They are substitutes, and not very close ones. A games console goes up 10% and sales of its games fall 3%. XED is −3 ÷ +10 = −0.3. Complements.
| Value | YED says the good is | XED says the two goods are |
|---|---|---|
| Above +1 | A luxury (demand grows faster than income) | Close substitutes |
| Between 0 and +1 | A necessity (normal, but demand grows slowly) | Weak substitutes |
| Zero | Unaffected by income | Unrelated |
| Negative | Inferior (demand falls as income rises) | Complements |
Common mistake: Dropping the sign. On YED and XED the sign is the interpretation. A student who writes “XED is 0.5” for a complement has the size right and the economics wrong, and the mark scheme will not guess. Edexcel’s 2023 report said students confused XED with PED and YED, or wrote the formula out incorrectly. Write the formula first, every time.
PES: why supply is inelastic now and elastic later
PES is about how fast firms can respond. That depends on what they have to hand.
| Factor | Supply is inelastic when | Supply is elastic when |
|---|---|---|
| Spare capacity | Every machine and every seat is in use | Factories and staff are under-used |
| Stocks | The good cannot be stored: fresh food, hotel rooms, concert tickets | The good sits in a warehouse ready to ship |
| Time to produce | Growing a crop, building a house, training a doctor | A print run, a software download |
| Factor mobility | Skilled labour and specialist kit are hard to hire | Workers and machines can switch quickly |
| Time period | The short run, before capacity can change | The long run, when everything can change |
The short run versus long run point is the one the exam rewards. This summer’s festival has a fixed site. Raise the price 20% and no extra ticket appears: PES is 0. Next summer, on a bigger site, the same rise brings 20% more tickets: PES is 1. Same product, different time period, different elasticity.
Elasticity and indirect taxes: who pays
Edexcel names this in the specification and every board sets it. A tax on a good with inelastic demand barely changes the quantity, so the seller passes most of it on and the government collects a lot. A tax on a good with elastic demand cuts the quantity hard, so the seller has to absorb most of it and the revenue is small. The diagram is on the A Level economics diagrams page.
| Demand is | The consumer pays | The producer pays | Quantity | Tax revenue |
|---|---|---|---|---|
| Inelastic (fuel, tobacco) | Most of the tax | Little of it | Falls a little | High |
| Elastic (a brand of crisps) | Little of the tax | Most of it | Falls a lot | Low |
A subsidy runs the same logic backwards. Inelastic demand means most of the subsidy shows up as a lower price for the consumer with little extra bought.
Worked example — the bus day ticket
A town bus company sells a day ticket. Its demand is a straight line: P = 12 − 0.1Q, with Q in tickets a day. At £12 nobody buys. At a price of zero, 120 tickets a day would go.
- At £9 it sells 30 tickets. Revenue is £9 × 30 = £270.
- It cuts the fare to £8. Sales rise to 40. Revenue is £8 × 40 = £320.
- PED for the cut: quantity rose 10 ÷ 30 = 33.3%, price fell 1 ÷ 9 = 11.1%, so PED = 33.3 ÷ −11.1 = −3. Elastic. The cut raised revenue by £50.
- Now the bottom of the curve. At £3 it sells 90 tickets, revenue £270. It raises the fare to £4. Sales fall to 80, revenue £320.
- PED for the rise: quantity fell 10 ÷ 90 = 11.1%, price rose 1 ÷ 3 = 33.3%, so PED = −11.1 ÷ 33.3 = −0.33. Inelastic. The rise raised revenue by £50.
- The midpoint is £6 and 60 tickets. PED there is −1 and revenue is £360, the most the fares can raise.
- The rule: where demand is elastic, cut the price. Where it is inelastic, raise it. Where PED is −1, you are already at the top.
Every number above comes from the same demand equation, so change the equation and every step moves with it. That is what “calculate” means in the mark scheme: a formula, the percentages, the answer with a sign, and one line saying what it means.
Exam-style questions
Q1: A bus company cuts its day ticket from £9 to £8 and sales rise from 30 to 40 a day. Calculate the price elasticity of demand and state what happens to total revenue. (4 marks)
A: Percentage change in quantity = (40 − 30) ÷ 30 = +33.3% (1). Percentage change in price = (8 − 9) ÷ 9 = −11.1% (1). PED = 33.3 ÷ −11.1 = −3, so demand is price elastic (1). Total revenue rises from £270 to £320 (1).
Q2: A supermarket sells 650 packs of a normal good a week. Its income elasticity of demand is +0.4. Real incomes fall by 3%. Calculate the new weekly sales. (3 marks)
A: Rearrange the formula: percentage change in quantity = YED × percentage change in income = 0.4 × −3 = −1.2% (1). Change in sales = 650 × 0.012 = 7.8 packs (1). New sales = 650 − 7.8 = 642.2, so 642 packs a week (1). OCR set exactly this two-step shape as a multiple-choice question in 2023, and its report told students to practise rearranging the formula.
Q3: Explain, using the concept of price elasticity of supply, why festival ticket prices rose sharply when demand increased this summer, and evaluate whether they will stay high. (10 marks)
A: Define, calculate, explain, and only then evaluate.
- Knowledge and application: PES = percentage change in quantity supplied ÷ percentage change in price. This summer’s site holds 5,000 people. Demand rose, the price rose 20%, and the quantity supplied stayed at 5,000: PES = 0 ÷ 20 = 0, perfectly inelastic.
- Analysis: with a vertical supply curve the whole of a demand increase goes into price and none into quantity. Draw supply as a vertical line at 5,000, shift demand right, and show price rising with quantity unchanged. Because the organiser cannot add capacity this year, buyers bid the price up until 5,000 of them are left.
- Evaluation: next year the organiser can book a bigger site. If a 20% higher price then brings 6,000 tickets, PES = 20 ÷ 20 = 1. Supply is more elastic in the long run, so part of the demand increase goes into quantity and the price rises less. It depends on planning permission for the larger site and on rival festivals: more substitutes make demand more elastic, which also holds prices down. Judgement: high this summer, lower next summer if capacity can grow.
Examiner’s checklist: the mistakes that lose elasticity marks
- The formula upside down. Quantity on top, always. Edexcel’s 2023 report said this was still going wrong.
- XED confused with PED or YED. XED has two goods in it. If the question names two goods, it is XED.
- No sign. PED is negative. On YED and XED the sign is the answer.
- “Elastic” with no number. State the value, then interpret it.
- A good treated as fixed. PED changes along the curve. Say where on the curve you are.
- One-step calculations only. OCR’s 2023 report asked teachers to practise multi-stage questions: rearrange, find the percentage, then find the new quantity.
- PES with no time period. Say short run or long run. It is usually the evaluation point.
Key takeaways
- All four formulas have the same shape: the responder on top, the cause underneath.
- PED: size decides elastic or inelastic. YED and XED: sign decides the type of good, size decides how strongly.
- Revenue rule: elastic demand, cut the price; inelastic demand, raise it; PED −1, revenue is at its peak.
- PED is not fixed. It is elastic at the top of a straight-line demand curve and inelastic at the bottom.
- PES rises over time, because in the long run firms can add capacity.
- Inelastic demand shifts a tax onto consumers and makes it a good earner for the government.
FAQ
Q: What is the formula for price elasticity of demand (A Level)?
A: PED = percentage change in quantity demanded ÷ percentage change in price. Work out each percentage from the original figure, divide, and keep the minus sign. Then say what the size means.
Q: What is the difference between PED, YED, XED and PES?
A: They measure the response of a quantity to four different causes. PED: demand to the good’s own price. YED: demand to income. XED: demand for one good to the price of another. PES: supply to price. Same formula shape each time.
Q: Is PED always negative, and does the minus sign matter?
A: Yes, because price and quantity demanded move in opposite directions. Boards accept an answer with or without the minus sign, as long as you interpret the size correctly. On YED and XED the sign is not optional. It is the point.
Q: What makes price elasticity of supply inelastic at A Level?
A: No spare capacity, no stocks, a long production time, immobile factors and a short time period. Fresh food, concert venues and housing are the standard examples. Over a longer period every one of those loosens, so PES rises.
Q: How many marks is an elasticity calculation worth?
A: Usually 2 to 4 marks: the formula, the percentages, the value with a sign, and the interpretation. Edexcel asked for the likely value of XED between streaming services for 8 marks in 2023, so the interpretation can carry as many marks as the sum.
Q: Is elasticity A Level economics content the same on every board?
A: The four elasticities are on every board in the same form. The emphasis differs. Edexcel names the significance for firms and government, so expect tax and subsidy links. OCR asks for a diagram of the different values. AQA wants the total revenue link. The board pages spell out each one: AQA 7136, Edexcel 9EC0, OCR H460. The other topics are on the A Level economics revision hub.
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