Elasticity of Demand (Price, Income, Cross)

    OCR
    GCSE

    Analysis of the responsiveness of quantity demanded to changes in price, income, and prices of related goods. This study component demands rigorous application of quantitative skills to calculate coefficients (PED, YED, XED) and qualitative analysis to interpret their significance for business revenue strategies and government fiscal policy. Candidates must distinguish between elastic, inelastic, and unitary conditions, applying these concepts to market failure, tax incidence, and consumer behavior models.

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    Objectives
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    Exam Tips
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    Pitfalls
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    Key Terms
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    Mark Points

    What You Need to Demonstrate

    Key skills and knowledge for this topic

    • Award marks for correct calculation of elasticity coefficients using the percentage change formula (%ΔQd / %ΔP).
    • Credit responses that explicitly link PED values (elastic > 1, inelastic < 1) to pricing strategies for revenue maximization.
    • Candidates must analyse the determinants of elasticity using the SPLAT framework (Substitutes, Percentage of income, Luxury/Necessity, Addiction, Time).
    • High-level responses must evaluate the limitations of elasticity data, considering ceteris paribus assumptions and time lags.

    Marking Points

    Key points examiners look for in your answers

    • Award marks for correct calculation of elasticity coefficients using the percentage change formula (%ΔQd / %ΔP).
    • Credit responses that explicitly link PED values (elastic > 1, inelastic < 1) to pricing strategies for revenue maximization.
    • Candidates must analyse the determinants of elasticity using the SPLAT framework (Substitutes, Percentage of income, Luxury/Necessity, Addiction, Time).
    • High-level responses must evaluate the limitations of elasticity data, considering ceteris paribus assumptions and time lags.

    Examiner Tips

    Expert advice for maximising your marks

    • 💡Always state the formula and show full working for calculation questions to secure method marks.
    • 💡When evaluating pricing decisions, explicitly contrast the revenue outcome for elastic vs. inelastic goods.
    • 💡Use the mnemonic SPLAT to generate analytical points regarding why a product has a specific elasticity.
    • 💡In 12-mark questions, synthesize elasticity with other economic factors (e.g., costs of production, competition) for a holistic judgement.

    Common Mistakes

    Pitfalls to avoid in your exam answers

    • Inverting the elasticity formula (calculating %ΔP / %ΔQd instead of %ΔQd / %ΔP).
    • Confusing 'inelastic demand' with 'perfectly inelastic demand' (assuming quantity does not change at all).
    • Asserting that a price increase always leads to an increase in profit, ignoring the impact of PED on Total Revenue.

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    Key Terminology

    Essential terms to know

    Likely Command Words

    How questions on this topic are typically asked

    Calculate
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