Summary AQA A Level Business: Price & Income Elasticity of Demand Study Guide

Elasticity of Demand
AQA A Level Business Study Guide | Marketing Management




1. Price Elasticity of Demand (PED)

PED measures the responsiveness of the quantity demanded of a product to a
change in its price. It helps businesses understand how price changes will affect their
total revenue.


PED = % Change in Quantity Demanded / % Change in Price


Key Classifications:

• Price Elastic (>1): Demand is highly responsive. A small price increase leads to a
large drop in demand. Total revenue falls if price rises.
• Price Inelastic (<1): Demand is less responsive. A price increase leads to a small
drop in demand. Total revenue rises if price rises.
• Unitary Elastic (=1): Percentage change in demand is exactly equal to
percentage change in price.


2. Income Elasticity of Demand (YED)

YED measures how the quantity demanded of a product changes as consumer
income levels change.


YED = % Change in Quantity Demanded / % Change in Income


Types of Goods:

Type of YED
Description
Good Value

Normal Positive Demand rises as income rises. Includes necessities and
Good (+) luxuries.




Source: Save My Exams - AQA A Level Business Revision Notes