A 5% decrease in the price of newspapers leads to a 4% increase in the quantity demanded. What is the price elasticity of demand for newspapers?

Answer options:

-1.25

-0.8

+0.8

+1.25

How to approach this question

1. Recall the formula for Price Elasticity of Demand (PED): PED = %ΔQd / %ΔP. 2. Substitute the given values into the formula: %ΔQd = +4% and %ΔP = -5%. 3. Calculate the result: PED = 4 / -5 = -0.8.

Full Answer

B.-0.8✓ Correct

Price elasticity of demand (PED) measures how sensitive the quantity demanded of a good is to a change in its price. The formula is PED = % Change in Quantity Demanded / % Change in Price. In this case, PED = 4% / -5% = -0.8. The negative sign indicates the inverse relationship between price and quantity demanded (as price falls, demand rises). The value of 0.8 (less than 1) signifies that demand is price inelastic, meaning consumers are not very responsive to changes in the price of newspapers.

Common mistakes

Getting the formula the wrong way around (dividing price change by quantity change) or getting the sign wrong. PED for a normal good is always negative.

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A 5% decrease in the price of newspapers leads to a 4% increase in the quantity demanded. What is the price elasticity of demand for newspapers?

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Practice the full AQA GCSE Economics Paper 1

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