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9708 · 2.2

Price elasticity of demand — practice questions

Practice and worked examples for 9708 Price elasticity of demand. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Price rises from £4 to £5; quantity falls from 200 to 160. Find PED.

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ΔP = +25%, ΔQ = −20%

PED = (−20%)/(+25%) = −0.8 (inelastic)

TR before = £800; after = £800 — unchanged direction confirms inelastic range near unit.

Worked example 2

A cinema reduces its ticket price from 12to12 to 10. Consequently, weekly ticket sales increase from 500 to 700. Calculate the PED and advise the cinema on its pricing strategy.

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  1. Calculate Percentage Change in Price (%ΔP): Change in Price = 10−10 - 12 = -22 %ΔP = (-2/2 / 12) * 100 = -16.67%
  2. Calculate Percentage Change in Quantity Demanded (%ΔQd): Change in Quantity = 700 - 500 = +200 %ΔQd = (200 / 500) * 100 = +40%
  3. Calculate PED: PED = %ΔQd / %ΔP = 40% / -16.67% = -2.4
  4. Interpret the result and advise: The absolute value of PED is 2.4, which is greater than 1. This means demand is price elastic. Original Total Revenue (TR) = 12∗500=12 * 500 = 6,000 New Total Revenue (TR) = 10∗700=10 * 700 = 7,000 Since demand is elastic, the price reduction led to a proportionally larger increase in quantity demanded, causing total revenue to increase by $1,000. The cinema's decision to lower the price was correct for increasing revenue.
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