An elasticity value measures how strongly one variable responds to a change in another. The size tells you how responsive, and the sign tells you the direction. Exam questions ask you to calculate the value and then state what it shows.
This lesson builds on percentage change and the base and feeds directly into elasticity and revenue.
How do you read the size and the sign?
Price elasticity of demand (PED) = percentage change in quantity demanded ÷ percentage change in price. Ignoring the sign, use these bands:
| Size of PED | Description | Meaning |
|---|---|---|
| Greater than 1 | Elastic | Quantity changes by a larger percentage than price |
| Equal to 1 | Unitary | Quantity changes by the same percentage as price |
| Between 0 and 1 | Inelastic | Quantity changes by a smaller percentage than price |
| 0 | Perfectly inelastic | Quantity does not respond |
For other measures, the sign carries meaning. Income elasticity of demand (YED) is positive for a normal good and negative for an inferior good. Price elasticity of supply (PES) is positive, because a higher price encourages more output.
Check the Cambridge subject page for the exact list of measures and bands in your exam year.
Worked example
Selatan Bakery is a fictional business. It raises the price of a loaf from RM5.00 to RM5.50. Weekly sales fall from 1,000 loaves to 850.
Price change: 0.50 ÷ 5.00 × 100 = +10%.
Quantity change: −150 ÷ 1,000 × 100 = −15%.
PED: −15 ÷ 10 = −1.5.
Interpretation: the size is 1.5, which is greater than 1, so demand is elastic over this price range. A 1% rise in price is linked to a 1.5% fall in quantity demanded. The negative sign matches the usual downward-sloping demand.
Now compare a fictional salt seller, Garam Murni. Price rises 10% and quantity falls 2%, so PED = −2 ÷ 10 = −0.2.
The size is below 1, so demand is inelastic. Salt has few close substitutes and takes a small share of spending.
The mistake to watch for
A common slip is to read the sign as a verdict on size.
Mistaken statement: “PED is −1.5, which is less than −0.2, so demand for bread is less elastic than demand for salt.”
The student compared the signed numbers. Because −1.5 is lower on the number line, they treated it as smaller.
Compare the sizes instead. 1.5 is greater than 0.2, so bread demand is the more elastic. The sign shows direction only.
Check yourself
1. A fictional shop raises a price from RM20 to RM25. Quantity demanded falls from 80 to 60. Find PED and say what it shows.
Show answer
Price: 5 ÷ 20 × 100 = +25%. Quantity: −20 ÷ 80 × 100 = −25%. PED = −25 ÷ 25 = −1. Demand is unitary elastic over this range.
2. A price falls by 10% and quantity demanded rises by 4%. Calculate PED and describe demand.
Show answer
PED = 4 ÷ (−10) = −0.4. The size is below 1, so demand is inelastic.
3. Incomes in a fictional town rise by 5%. Demand for instant noodles falls by 2%. Calculate YED and name the type of good.
Show answer
YED = −2 ÷ 5 = −0.4. The negative sign shows an inferior good.
Where this leads next
Move on to connecting price elasticity with a revenue change. The elasticity tutor can check your calculation and the percentage-base explorer supports the first step.
When your calculations are right but your sentences lose marks, individual feedback helps. That is part of our online one-to-one Economics tuition.