A Level Economics AQA Practice Exam

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What is the formula for calculating price elasticity of demand (PED)?

% change in quantity supplied / % change in price
% change in quantity demanded / % change in price
% change in quantity demanded / % change in income
% change in income / % change in quantity supplied

The correct answer is: % change in quantity demanded / % change in price

The formula for calculating price elasticity of demand (PED) is indeed the percentage change in quantity demanded divided by the percentage change in price. This measure helps to determine how sensitive the quantity demanded of a good or service is to changes in its price. A high PED value indicates that consumers are very responsive to price changes, while a low PED indicates that they are less responsive. Understanding PED is crucial for businesses and policymakers, as it can influence pricing strategies, tax policies, and demand forecasting. For example, if a product has a high price elasticity, a small increase in price could lead to a significant drop in quantity demanded, affecting total revenue. The other options relate to different concepts. The ratio involving quantity supplied reflects the price elasticity of supply, while the percentages related to income explore income elasticity. These different measures serve various analytical functions in economics but do not apply to the specific framework of price elasticity of demand.