IB Economics: Price Elasticity of Demand (PED) FAQ

PED measures how much quantity demanded changes when price changes, calculated as percentage change in quantity demanded divided by percentage change in price. A PED value above 1 (ignoring the negative sign) means demand is elastic; below 1 means inelastic. It's assessed in both SL and HL Economics under Microeconomics.

Most marks vanish because students state a PED value without linking it to a real consequence — total revenue, government tax decisions, or firm pricing strategy. Examiners want the calculation, the correct label (elastic/inelastic/unitary), and an explained implication. A bare number with no interpretation caps you at the lowest mark band.

Find the percentage change in quantity demanded, find the percentage change in price, then divide the first by the second. Ignore the negative sign and classify the result: greater than 1 is elastic, less than 1 is inelastic, exactly 1 is unitary. Always show your working — examiners award method marks even for an arithmetic slip.

Five factors matter most: availability of substitutes, whether the good is a necessity or luxury, the proportion of income spent on it, time period considered, and whether it's habit-forming or addictive. More substitutes and longer time horizons both push PED higher (more elastic); necessities and addictive goods tend to have low PED.

When demand is elastic (PED > 1), a price rise cuts total revenue because quantity falls proportionally more than price rises. When demand is inelastic (PED < 1), a price rise increases total revenue, since quantity falls proportionally less. At unitary elasticity, revenue stays constant regardless of price change.

Governments use PED to predict tax revenue and consumer behaviour. Taxing an inelastic good — cigarettes, for example — raises significant revenue because quantity barely falls, while consumers bear most of the tax burden. Taxing an elastic good raises less revenue since demand collapses, and producers absorb more of the burden.

PED measures demand's response to a good's own price change. YED (income elasticity of demand) measures response to a change in consumer income. XED (cross elasticity of demand) measures how demand for one good responds to a price change in a different, related good. All three use the same percentage-change ratio structure but answer different questions.

Yes — for any extended-response question involving PED, a labelled demand curve showing relative steepness earns marks independently of your written explanation. Steeper curves represent more inelastic demand; flatter curves represent more elastic demand. Skipping the diagram in a paper 1 or paper 2 essay-style question typically costs marks under the assessment criteria for using diagrams.

PED itself isn't conceptually difficult — the formula is simple arithmetic. What makes it feel hard is that IB exam questions rarely ask for the calculation alone; they embed it inside a real-world scenario and expect you to explain implications for revenue, tax policy, or business strategy in written prose.

The recurring errors are: forgetting to convert to percentages before dividing, mislabelling elastic versus inelastic, ignoring the negative sign inconsistently, and — most costly — never linking the number back to the question's actual context, such as revenue, welfare, or policy.

Yes — PED appears in the Microeconomics unit for both SL and HL, and it's tested identically in terms of core theory. HL students go further, applying PED alongside more advanced elasticity-based welfare analysis and often facing longer, more layered data-response questions in paper 3, which SL students don't sit.

Practise past paper data-response questions that give you real price and quantity figures, not just definitions. Time yourself calculating PED, then force yourself to write the follow-up explanation sentence before checking the mark scheme. Repetition on real exam-style numbers matters more than re-reading notes on the formula.

A mix of concise notes for the formula and determinants, plus a large bank of past-paper-style questions with worked mark schemes, works best — students need repetition on applying PED to unfamiliar contexts, not just memorising the definition. Revision Notes paired with a Topical Worksheet set covering Microeconomics gives that combination without needing separate resources.