← Market equilibrium
Elasticity calculations (every paper)
Formula, sign interpretation, revenue link. Show the percentage workings. Exam-style Price rises from $4 to $5; quantity falls from 100 to 80 Calculate PED and interpret. %ΔQ = (80 − 100)/100 = −20%; %ΔP = (5 − 4)/4 = +25% PED = −20 ÷ 25 = −0.8 → |0.8| < 1 → INELASTIC Revenue check: was $400, now $400 — unit elastic point nearby; revenue is maximised where PED = 1. ✓ PED ≈ −0.8, inelastic: the quantity response is proportionally smaller than the price change. ℹ
Elasticity on the graph
Flatter demand = more elastic (at a given price range); steeper = more inelastic. Perfectly inelastic = vertical; perfectly elastic = horizontal.
| PED value | Interpretation | Total revenue if price rises |
|---|
| |PED| > 1 | Elastic — quantity very responsive | Revenue FALLS |
| |PED| = 1 | Unit elastic | Revenue unchanged (at maximum) |
| |PED| < 1 | Inelastic — quantity barely responds | Revenue RISES |
A fast check before submitting a PED calculation
- Have I shown the percentage-change workings, not just the final PED value?
- Have I stated whether demand is elastic, inelastic, or unit elastic, not left the number to speak for itself?