Syllabus: AQA - GCSE Economics
Module: 3.1.3 How prices are Determined
Lesson: 3.1.3.5 Price Elasticity of Demand

Introduction

Price elasticity of demand (PED) sits at the heart of decision-making in both business and public policy. As part of AQA’s GCSE Economics (8136), section 3.1.3.5, this topic helps students grasp how sensitive consumer demand is to price changes — an essential element of understanding market behaviour. Its inclusion supports curriculum goals around economic decision-making and provides a springboard into more complex market dynamics in later studies.

This topic aligns with Gatsby Benchmark 4 by linking core economic theory with real commercial decisions. It also enhances commercial literacy, a foundation for workplace readiness across all sectors.

Key Concepts

Students studying 3.1.3.5 should understand and be able to:

• Define price elasticity of demand as the responsiveness of quantity demanded to a change in price.

• Distinguish between elastic demand (greater than 1) and inelastic demand (less than 1).

• Identify factors influencing PED, including availability of substitutes, necessity vs luxury, proportion of income spent, and time period considered.

• Calculate PED using the formula:
  % change in quantity demanded ÷ % change in price

• Interpret elasticity figures to determine the impact of price changes on revenue.

• Evaluate how businesses use PED in setting pricing strategies and predicting consumer behaviour.

These components are explicitly listed in the AQA Economics 8136 specification under “How prices are determined”.

Real-World Relevance

PED plays a critical role in business strategy, particularly in competitive sectors like retail, travel, and consumer technology.

Case Example: Supermarket Pricing
When Aldi or Lidl lower prices on staple items like bread or milk, demand often increases significantly due to the availability of substitutes and the price-sensitive nature of customers. This demonstrates elastic demand. In contrast, luxury brands such as Apple may raise prices with minimal impact on demand, illustrating inelastic demand due to brand loyalty and lack of substitutes.

Policy Example: Fuel Duty
Governments often tax petrol based on the assumption that fuel is price inelastic in the short run — people still need to drive. However, long-term elasticity may rise as people switch to public transport or electric vehicles.

Embedding these examples in teaching supports students in connecting economic theory with tangible decisions made by firms and policymakers.

How It’s Assessed

Students are expected to:

• Perform calculations of PED using supplied data.

• Interpret numerical values and apply them to decision-making scenarios.

• Use diagrams to support explanations.

• Answer short-form structured questions and extended 6- or 9-mark questions that require application, analysis, and evaluation.

Command words often include:

• “Calculate” – requiring numerical PED answers.

• “Explain” – where students must link theory to context.

• “Evaluate” – asking students to weigh up different pricing decisions based on elasticity.

AQA places a strong emphasis on real-world application and the ability to interpret economic data, so incorporating data-based practice is critical.

Enterprise Skills Integration

Price elasticity of demand is inherently linked to strategic thinking, decision-making, and market awareness — all central to commercial literacy.

Using tools like the Skills Hub Futures platform, students can:

• Simulate business scenarios where they adjust pricing to maximise revenue.

• Use data to predict customer behaviour and justify pricing strategies.

• Explore trade-offs between profit, affordability, and competition — enhancing applied problem-solving.

This aligns with the decision-making and problem-solving theme: weighing multiple variables, calculating risks, and forecasting outcomes.

Careers Links

Understanding PED builds skills and knowledge aligned to multiple career paths and helps meet Gatsby Benchmarks 4, 5, and 6.

Relevant careers include:

• Marketing and pricing analysts

• Retail managers

• Economists and policy advisers

• Finance and revenue analysts

• Business development professionals

Skills gained through this topic are sought after in roles involving pricing decisions, customer behaviour analysis, and financial forecasting — from logistics to law.

Through platforms like Skills Hub Futures, students encounter real workplace scenarios validated by employer partners, supporting professional readiness for a range of sectors.

Teaching Notes

Classroom Strategies:

• Use mini case studies comparing elastic vs inelastic goods to spark discussion.

• Introduce the concept via interactive polling: “Would you still buy this if the price rose 10%?”

• Embed calculation tasks with guided steps before introducing exam-style questions.

Common Pitfalls:

• Confusing PED with the slope of the demand curve.

• Misinterpreting numerical values (e.g. not identifying that PED is negative but often expressed as a positive value in magnitude).

• Struggling with percentage change calculations.

Extension Activities:

• Investigate pricing strategies of contrasting companies (e.g. Ryanair vs Emirates).

• Explore how elasticity varies across time for products like petrol, subscriptions, or mobile phones.

• Link PED to business objectives and revenue forecasting — encouraging interdisciplinary thinking.

Recommended Tools:

• Skills Hub simulation for pricing strategy

• Real company pricing case studies from Skills Hub Business

• Active learning techniques such as role play pricing boards, peer teaching, or decision-tree activities based on customer scenarios