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.
A typical 4-mark "calculate PED" question rewards a clear three-step method plus a one-line interpretation.
Step 1. Calculate the percentage change in quantity demanded.
Step 2. Calculate the percentage change in price.
Step 3. Divide: PED = %ΔQd ÷ %ΔP.
Step 4. Interpret the result: say whether demand is elastic (
|PED| > 1) or inelastic (|PED| < 1), and what that means for total revenue.
Example — A bus operator cuts the fare for its city-centre route from £3 to £2.40. The number of journeys per week rises from 5,000 to 6,500. Calculate the PED and explain the result.
Step 1: percentage change in Qd
%ΔQd = (6,500 − 5,000) ÷ 5,000 × 100 = +30 %
Step 2: percentage change in P
%ΔP = (2.40 − 3.00) ÷ 3.00 × 100 = −20 %
Step 3: calculate PED
PED = +30 ÷ −20 = −1.5
Taking the absolute value: |PED| = 1.5.
Step 4: interpret
|PED| = 1.5 > 1, so demand is relatively elastic. The percentage rise in journeys (30%) is larger than the percentage cut in fares (20%). The fare cut therefore raises total revenue, because the rise in passenger numbers more than compensates for the lower price per journey.
Confirming with total revenue:
£3.00 × 5,000 = £15,000 per week.£2.40 × 6,500 = £15,600 per week.Always quote the units of the answer and keep the working visible. Examiners apply error-carried-forward (ECF): a slip in step 1 still scores marks for steps 2–4 if those are internally consistent.