Price elasticity of demand and supply
G3 Economics - syllabus K343, 2027
Calculate and interpret PED and PES, explain what affects them, and use PED to predict revenue.
- Price elasticity of demand: definition and calculation
PED measures how strongly quantity demanded responds to a change in price.
- Reading PED values and drawing them
Above 1 is elastic, below 1 is inelastic, exactly 1 is unitary, 0 is perfectly inelastic.
- Drawing perfectly inelastic and perfectly elastic demand
Perfectly inelastic demand (PED = 0) is a vertical line. Perfectly elastic demand (PED infinite) is a horizontal line.
- What makes demand elastic or inelastic
Demand is more elastic when there are close substitutes, the good takes a large share of income, or buyers have time to adjust.
- PED, consumer spending and firms' revenue
If demand is elastic, a price cut raises revenue; if demand is inelastic, a price rise raises revenue.
- Why PED matters to consumers, workers, firms and government
PED helps firms set prices, governments choose what to tax, and explains who bears a price change.
- Price elasticity of supply
PES measures how strongly quantity supplied responds to a change in price.
- Drawing perfectly inelastic and perfectly elastic supply
Perfectly inelastic supply (PES = 0) is a vertical line. Perfectly elastic supply (PES infinite) is a horizontal line.
- What makes supply elastic or inelastic
Supply is more elastic when firms have spare capacity, stocks, mobile resources and time to respond.
- Put it together: Choose a good to tax
A government wants to raise revenue and improve health. It can raise the tax on one good this year. The price elasticity of demand differs for each.
What you will be able to do
I can define price elasticity of demand (PED).
Syllabus K343, 2.6.1. Definition of PED
Taught in Price elasticity of demand: definition and calculation
I can calculate PED, say what the value means, and draw demand curves with different elasticities.
Syllabus K343, 2.6.2. Calculation of PED: calculation of PED using the formula; interpretation of the significance of the PED value: perfectly inelastic, inelastic, unitary, elastic, perfectly elastic; drawing and interpretation of demand curve diagrams to show different PED
Taught in Price elasticity of demand: definition and calculation, Reading PED values and drawing them, Drawing perfectly inelastic and perfectly elastic demand
I can explain what makes demand elastic or inelastic.
Syllabus K343, 2.6.3. Determinants of PED: main influences on whether demand is elastic or inelastic
Taught in What makes demand elastic or inelastic
I can use a diagram and a calculation to show how a price change affects consumer spending and firm revenue.
Syllabus K343, 2.6.4. PED, consumer expenditure and firms' revenue: effect of price changes on the amount spent by consumers and revenue raised by firms, shown both in a diagram and as a calculation; relationship between PED and the amount spent by consumers and revenue raised by firms
I can explain why PED matters for the decisions of consumers, workers, firms and governments.
Syllabus K343, 2.6.5. Significance of PED: implications of PED for decision-making by consumers, workers, producers/firms and government
Taught in Why PED matters to consumers, workers, firms and government
I can define price elasticity of supply (PES).
Syllabus K343, 2.7.1. Definition of PES
Taught in Price elasticity of supply
I can calculate PES, say what the value means, and draw supply curves with different elasticities.
Syllabus K343, 2.7.2. Calculation of PES: calculation of PES using the formula; interpretation of the significance of the PES value: perfectly inelastic, inelastic, unitary, elastic, perfectly elastic; drawing and interpretation of supply curve diagrams to show different PES
Taught in Price elasticity of supply, Drawing perfectly inelastic and perfectly elastic supply
I can explain what makes supply elastic or inelastic.
Syllabus K343, 2.7.3. Determinants of PES: main influences on whether supply is elastic or inelastic
Taught in What makes supply elastic or inelastic