Price elasticity of demand
Price elasticity of demand measures the responsiveness of quantity demanded to price changes: percentage change in quantity divided by percentage change in price, on the specified calculation basis. Demand commonly has a negative sign; elasticity classifications often use the magnitude. An elastic response has magnitude above one. State whether percentages use original values or a midpoint convention and avoid mixing methods when comparing results.
Worked example
Using original values, a 5% price rise causing a 10% fall in quantity gives PED = −2, or magnitude 2, indicating elastic demand on that interval.
Common mistake
Elasticity concerns demand response, not whether a product has a high absolute price or unit profit margin.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | BT | Direct | September 2026–June 2027 |
| ACCA | PM | Direct | September 2026–June 2027 |
| FIA | FBT | Direct | September 2026–June 2027 |