Allocation of Resources · 4 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 15% of your exam marks.
PED definition, formula, calculation, and revenue application appear regularly; trending upward since 2021.
Price elasticity of demand (PED) is the responsiveness of the quantity demanded to a change in the price of the good.
The law of demand (topic 4) says that when price goes up, quantity demanded goes down. PED asks the next question: by how much? A small price rise might wipe out half the demand for a luxury item; the same rise might barely dent the demand for an essential medicine. PED puts a single number on that responsiveness.
A definition that just says "how demand changes when price changes" loses the second mark. The keyword examiners look for is responsiveness (or "responsiveness of quantity demanded").
Define price elasticity of demand (2 marks)
What comes up: "Define price elasticity of demand" or "What is meant by price elasticity of demand?" — a standard 2-mark definition question.
Write (two marks): (1) PED measures the responsiveness of quantity demanded to a change in price; (2) it equals the percentage change in quantity demanded divided by the percentage change in price (or: |PED| > 1 means demand is elastic; |PED| < 1 means inelastic).
Watch out: one mark is the idea of responsiveness and one mark develops it (either the formula, the direction of the relationship, or the elastic/inelastic interpretation). Simply writing "it shows how demand changes when price changes" is not enough for full marks — the word "responsiveness" (or an equivalent quantitative phrase) is needed to secure the first mark.