Price elasticities of demand and supply

H1 Economics - syllabus 8843, 2026

Measure how strongly buyers and sellers respond to changes in price, income and related prices, and use elasticity to explain revenue, price changes and policy.

• What elasticity measures

  Elasticity measures how strongly quantity responds to a change in price, income or another good's price.

• Calculate and interpret PED

  PED = % change in quantity demanded / % change in price. Above 1 is elastic; below 1 is inelastic.

• What makes demand elastic or inelastic?

  Demand is more elastic with close substitutes, a big share of income, luxuries and more time.

• PED and total revenue

  Raise the price if demand is inelastic; cut it if demand is elastic, and revenue rises.

• Slope is not elasticity

  Along a straight demand curve, the slope is constant but PED changes: elastic at the top, inelastic at the bottom.

• Calculate and interpret PES

  PES = % change in quantity supplied / % change in price. Above 1 is elastic; below 1 is inelastic.

• What makes supply elastic or inelastic?

  Supply is more elastic with spare capacity, stocks, mobile inputs and more time.

• How elasticity decides price and quantity changes

  When demand rises, inelastic supply means a big price rise and a small quantity rise.

• Using elasticity to make decisions

  Firms and governments use elasticity estimates to set prices and taxes, but estimates are only a guide.

• Case study practice: concert week

  A whole H1 case study: 40 marks, about 90 minutes in the exam. Answer every part, then compare with the suggested answers.

Original teaching notes