A-Level Economics: Elasticities

Elasticity is where A-Level Economics gets quantitative: the specification requires calculation, interpretation and application, and elasticity numbers appear in data-response questions every session. This quiz covers all four elasticities and their two most examined applications.

Price elasticity of demand is tested through its determinants — necessity, availability of substitutes, time horizon — and through the revenue logic that makes PED commercially meaningful: why a price rise cuts total revenue when demand is elastic, and how the long run makes demand more elastic as consumers find substitutes. Income elasticity questions decode the signs and magnitudes: a YED of +2.5 marking a luxury, a negative YED marking an inferior good whose demand falls 5% when incomes rise 10%. Cross elasticity is tested computationally — printers up 10%, cartridge demand down 20%, XED = −2.0, complements — and conceptually through the sign convention for substitutes.

Price elasticity of supply completes the quartet with its determinants: spare capacity and storability as the flexibility factors that let quantity supplied respond.

The application questions carry the analytical weight: tax incidence, worked through the general principle that the burden falls on the more inelastic side of the market, and the limiting case of perfectly inelastic demand where consumers bear the entire tax. These are the exact configurations that appear in indirect-tax evaluation essays.

All numbers are hypothetical and self-contained, and each explanation shows the calculation and the interpretation — the pairing A-level quantitative-skills marks require.

• Calculate and interpret PED, YED, XED and PES from given figures
• Predict total revenue effects of price changes from elasticity values
• Classify goods as normal, inferior, luxury, substitute or complement from elasticity signs
• Explain the determinants of demand and supply elasticity
• Apply elasticity to indirect tax incidence, including limiting cases

Aligned to the "How competitive markets work — elasticity" amplification of the DfE's GCE A level economics subject content, including the quantitative-skills requirement that elasticity be calculated and interpreted from data.