Syllabus: Pearson - A Level Business
Module: 1.2 Market
Lesson: 1.2.4 Price Elasticity of Demand

Introduction

This article supports the teaching of 1.2.4 Price Elasticity of Demand (PED) as outlined in Theme 1 of the Pearson Edexcel A Level Business specification. As part of the broader topic “How markets work,” this lesson provides essential microeconomic theory that helps students understand and analyse consumer response to price changes. It’s also a crucial building block for later content around revenue, pricing strategy, and government policy.

The concept is core to both Paper 1 and Paper 3 assessments and links directly to decision-making in business simulations and enterprise contexts. For time-pressed teachers, this is one of those topics where strong foundations pay dividends across the syllabus.

Key Concepts

According to the Pearson A Level specification, students need to:

• Understand and apply the formula for PED:

  PED=% change in quantity demanded% change in price\text{PED} = \frac{\%\text{ change in quantity demanded}}{\%\text{ change in price}}PED=% change in price% change in quantity demanded​

• Interpret PED values:

  • PED > 1: Elastic

  • PED < 1: Inelastic

  • PED = 1: Unitary elasticity

• Explore factors influencing PED, including:

  • Availability of substitutes

  • Necessity vs luxury goods

  • Proportion of income spent

  • Time period considered

• Evaluate the significance of PED for:

  • Firms: setting pricing strategies to maximise revenue

  • Governments: understanding the impact of taxes and subsidies on consumer behaviour

• Apply PED in diagrammatic, numerical, and real-world contexts, including the relationship between PED and total revenue.

Real-World Relevance

PED is more than a formula — it’s a lens through which students can make sense of the world:

• Petrol prices: Despite frequent rises, demand often remains stable — a classic inelastic good due to lack of substitutes.

• Black Friday sales: Discounts on elastic goods (like clothing or gadgets) lead to disproportionate spikes in sales.

• Luxury brands: High-end retailers often thrive despite price increases, illustrating the revenue-maximising power of low elasticity in niche markets.

• Government policy: Taxing cigarettes relies on PED being low, ensuring tax revenues remain stable while discouraging use.

For case study work, comparing the elasticity of budget airline tickets versus last-minute train fares offers a rich, accessible example.

How It’s Assessed

Expect a range of question types across A Level papers:

• Quantitative calculations: Students must calculate PED using supplied data.

• Interpretation tasks: Explain whether demand is elastic or inelastic based on numerical results.

• Analysis and evaluation: Discuss implications of PED for pricing, revenue, and policy decisions.

• Command words to prep for:

  • Calculate – expect formula use and number accuracy

  • Analyse – cause-effect chains explaining elasticity outcomes

  • Evaluate – weighing strategies and drawing supported conclusions

Mark schemes favour students who go beyond definitions to link elasticity back to decision-making.

Enterprise Skills Integration

Understanding PED directly supports key enterprise and commercial thinking skills:

• Problem-solving: Students assess how firms should respond to falling revenue based on elasticity data.

• Decision-making: Whether to raise or lower prices hinges on a strong grasp of PED.

• Data literacy: Interpreting and applying data from graphs, tables, or case studies mimics real-world business decision-making.

• Commercial awareness: Enterprise Skills Simulations let students test pricing strategies in live scenarios, seeing how consumer demand reacts in real time.

All of these skills align with the Enterprise Skills philosophy — helping students think, not just remember.

Careers Links

PED sits at the heart of numerous commercial and public sector roles:

• Marketing Analyst – pricing and sales forecasting

• Product Manager – adjusting strategies based on demand trends

• Policy Advisor – evaluating the effects of taxation or subsidy

• Retail Manager – using demand insights to plan seasonal pricing

This lesson supports Gatsby Benchmarks 4, 5, and 6 by linking curriculum content with employer expectations and workplace relevance.

Simulations and case-based learning give students a hands-on experience of applying economic theory in job-like scenarios.

Teaching Notes

What works:

• Start with everyday examples — train fares, meal deals, tech gadgets.

• Use paired discussions: “Would you still buy it if it cost 20% more?”

• Introduce calculation practice early, but always return to why it matters.

• Use demand curves with varying steepness to visualise elasticity types.

Common pitfalls:

• Students often confuse elastic vs inelastic (mnemonics help).

• Many forget that necessity doesn’t always mean inelasticity — context matters.

• Errors often arise in interpreting negative values (remind them PED is typically shown as a positive for ease of use).

Extension ideas:

• Explore dynamic pricing on platforms like Uber or Ryanair.

• Run a Business Simulation Day where students test price strategies and reflect on demand changes.

• Use Skills Hub interactive PED tools for differentiated practice that’s plug-and-play and fully syllabus aligned.