The PED Formula — Price Elasticity of Demand (PED) | IGCSE Economics

Exam Frequency Analysis

Past paper frequency (2018 to 2024)

This topic accounts for approximately 15% of your exam marks.

increasing

Very High

Increasing15%

PED definition, formula, calculation, and revenue application appear regularly; trending upward since 2021.

$\text{PED} = \dfrac{\%\,\Delta\,Q_d}{\%\,\Delta\,P}$

That is, PED is the percentage change in quantity demanded divided by the percentage change in price. Both numbers are percentages, not raw unit changes.

To work out either percentage change:

$\% \,\text{change} = \dfrac{\text{new value} - \text{old value}}{\text{old value}} \times 100$

A short illustration before the full template. The price of a takeaway pizza rises from £8 to £10, and quantity demanded falls from 200 to 150 per evening.

%ΔP = (10 − 8) ÷ 8 × 100 = +25 %
%ΔQd = (150 − 200) ÷ 200 × 100 = −25 %
PED = −25 ÷ 25 = −1

The PED value for a normal good is always negative (price and quantity move in opposite directions). Examiners often expect the absolute value and accept either −1 or 1 as long as the candidate explains the sign convention. Mark schemes typically use the absolute value, so this set of notes does the same unless otherwise stated.

Exam tip

Calculating PED: the percentage-change trap

What comes up: a data question gives you two prices and two quantities; you must calculate PED and state whether demand is elastic or inelastic.

Write: (1) find %ΔQd = (new Q − old Q) ÷ old Q × 100; (2) find %ΔP = (new P − old P) ÷ old P × 100; (3) PED = %ΔQd ÷ %ΔP; (4) if |PED| < 1, state demand is inelastic; if |PED| > 1, elastic.

Watch out: the most common error is dividing the absolute change in quantity by the absolute change in price instead of using percentages. For example, if price rises from $4 to $5 and quantity falls from 200 to 180, the absolute change ratio is 20 ÷ 1 = 20, which is wrong. The correct route is %ΔQd = −10%, %ΔP = +25%, PED = −0.4.