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This lesson covers price elasticity of demand — a measure of the responsiveness of quantity demanded to a change in price. PED is one of the most frequently examined concepts at A-Level and is essential for understanding how businesses set prices and how government policy (e.g., indirect taxes) affects markets. It is central to AQA Paper 1.
Key Definition: Price elasticity of demand (PED) measures the responsiveness of the quantity demanded of a good to a change in its price, ceteris paribus.
The concept was developed by Alfred Marshall (1890), who recognised that the slope of the demand curve alone does not fully capture how sensitive consumers are to price changes.
PED = Percentage change in quantity demanded / Percentage change in price
Or equivalently:
PED = (%ΔQd) / (%ΔP)
Because of the law of demand (inverse relationship between price and quantity demanded), PED is always negative. However, by convention, we often refer to the absolute value (ignoring the negative sign) when describing whether demand is elastic or inelastic.
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