Price Elasticity of Demand and Supply
How strongly the quantity people buy or firms sell responds to a change in price: elastic and inelastic goods, what makes them so, and why it matters to sellers.
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Free interactive practice at using the material, which is what the marks are for.
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How much does demand respond?
When the price of a good changes, the quantity people buy also changes, but by different amounts for different goods. Price elasticity measures how strongly the quantity responds to a change in price. Some goods are elastic, where a small price change causes a big change in quantity, and some are inelastic, where the quantity barely moves.
Elasticity terms
Learn these four terms before you study elasticity.
Elastic or inelastic?
The response of quantity to price puts a good into one of two groups.
The reason and the result
Explain the reason and the result. In words, elasticity compares the percentage change in quantity with the percentage change in price. If a good has few substitutes and is a necessity, its demand is inelastic, so a seller who raises the price keeps most of its buyers and gains more revenue. For an elastic good the opposite is true.
Match the term
- price elasticity of demand
- elastic demand
- inelastic demand
- price elasticity of supply
- how much the quantity demanded responds to a price change
- quantity changes a lot when the price changes
- quantity changes little when the price changes
- how much the quantity supplied responds to a price change
Match the good to its demand
- a luxury holiday
- table salt
- one brand of crisps
- petrol for a car
- elastic, because it is not essential
- inelastic, because it is cheap with no real substitute
- elastic, because there are many other brands
- inelastic, because there are few substitutes
What is elastic demand?
What does elastic demand mean?
- The quantity demanded changes a lot when the price changes.
- The quantity demanded changes very little when the price changes.
- The quantity demanded never changes at all.
- Demand for goods that only rich people buy.
What makes demand inelastic?
Select the TWO things that make demand more inelastic.
- The good is a necessity.
- There are few substitutes.
- The good is a luxury.
- There are many substitutes.
Order the reasoning
Put this reasoning about an inelastic good in order, earliest first.
- A good has few substitutes
- Its demand is inelastic
- The seller raises the price
- Few buyers leave, so the seller gains more revenue
Summarise elasticity
Price _____ of demand measures how much the quantity demanded responds to a change in price. When demand is _____, a price change causes a big change in quantity, which is common for luxuries. When demand is _____, a price change causes only a small change in quantity, which is common for a _____. Demand tends to be more inelastic when there are few _____.
Count the kinds
How many kinds of price elasticity does this module cover: price elasticity of demand and price elasticity of supply?
Find the inelastic goods
Tap the TWO goods that usually have inelastic demand.
- Table salt
- A luxury holiday
- Petrol for a car
- One brand of crisps
- A designer handbag
Elastic or inelastic?
Decide whether each good usually has elastic or inelastic demand.
- A life-saving medicine with no alternative
- One brand of fizzy drink among many similar brands
- A cheap everyday item that people always need
Explain elasticity
Explain why a necessity such as bread tends to have inelastic demand, and what this means for a seller who raises the price.
- Explain what inelastic demand means
- Explain why a necessity has inelastic demand
- Explain what happens to the revenue of the seller if they raise the price