What does price elasticity of demand (PED) measure?

What price elasticity of demand measures and how a value is read, the calculation, what determines whether demand is elastic, and what it means for pricing and revenue.

What you need to know

Answer each one before you reveal it.

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Numbers

What does price elasticity of demand measure, and how is a value read?

Process

What determines whether demand is price elastic?

Process

How does brand loyalty affect price elasticity of demand?

Key term

Why would demand for 'Coca-Cola' be more price elastic than demand for 'soft drinks' as a category?

Numbers

What calculation must be performed before determining the PED value?

Numbers

State the price-elasticity formula.

Numbers

State the total-revenue formula.

Questions from this subtopic

Each one with the model answer underneath.

1
What does price elasticity of demand (PED) measure?
Model answer
PED measures the responsiveness of quantity demanded to a change in price.
2
State the formula for calculating price elasticity of demand.
Model answer
PED = percentage change in quantity demanded ÷ percentage change in price.
3
What two variables are needed to calculate price elasticity of demand?
Model answer
Percentage change in quantity demanded and percentage change in price.
4
Why are PED values typically negative?
Model answer
Because price and quantity demanded move in opposite directions — when price rises, quantity demanded falls, and vice versa.
5
What does it mean when demand is described as price elastic?
Model answer
PED is greater than 1 (ignoring the sign), meaning quantity demanded is highly responsive to price changes.
6
If a product has a PED of -2.5, is demand elastic or inelastic?
Model answer
Demand is price elastic because the absolute value (2.5) is greater than 1.

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