Price changes and demand: an elasticity exercise

DEMO STUDY NOTE — All numbers are synthetic. This original teaching example is not an empirical research finding, an official Cambridge resource or an exam mark scheme.

Topic reference: Cambridge International AS & A Level Economics (9708), 2026–2028; AS Level topic 2.2.

Question

How responsive is the quantity demanded to a price increase? Treat the following observations as two points on an unchanged demand curve. All quantities and prices are invented for this exercise.

Worked example

Price rises from 10 to 12 currency units and quantity falls from 100 to 70 units. Using the original values as percentage-change bases, price rises by 20% and quantity falls by 30%. PED is −1.5. Its absolute value exceeds one, so demand is elastic over this change. Revenue falls from 1,000 to 840 currency units.

Interpretation and limits

The calculation assumes other influences on demand are unchanged. Two real-world observations alone would not establish a causal demand curve: income, substitutes, seasonality and product quality may also change. A midpoint calculation would produce a different numerical estimate for this finite change; state the method used.

Try it

At the new price, what quantity would keep revenue at 1,000? Divide 1,000 by 12: approximately 83.33 units. Explain why a seller should consider costs as well as revenue.

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Syllabus topic reference: Economics 9708, 2026–2028. These four examples cover selected topics only. Check your school’s AS/A Level course and examination year.