Syllabus: Cambridge - IGCSE Economics
Module: 2.6 Price Changes
Lesson: 2.6.2 Consequences of Price Changes

Introduction

This lesson supports the Cambridge IGCSE Economics syllabus, specifically Section 2.6.2, which focuses on the consequences of price changes in a market economy. This concept is central to understanding market dynamics, resource allocation, and decision-making — all core to both economic theory and real-world commercial awareness.

It helps students grasp how changes in supply and demand affect price and, in turn, influence consumer and producer behaviour. This topic builds commercial literacy by highlighting the interconnectedness of economic agents, an essential component of workplace readiness and Gatsby-aligned curriculum delivery.

Key Concepts

According to the Cambridge IGCSE syllabus, students should understand the following:

• The impact of price changes on consumer spending decisions, including substitution and income effects.

• Producer responses to price changes, such as changes in production levels or investment.

• The concept of market signals, where price acts as an incentive or deterrent.

• Resource allocation — how price changes can lead to more or fewer resources being directed to certain goods/services.

• Unintended consequences, including potential inefficiencies, market distortions, or externalities.

These concepts are not only foundational to economic theory but also to understanding how businesses and consumers interact in a changing marketplace.

Real-World Relevance

Price changes are constant in real markets, and their consequences are highly visible:

• Fuel Prices and Transport Behaviour: A spike in petrol prices often leads to reduced private car use and increased public transport demand — a clear example of how consumer behaviour responds to price signals.

• Housing Market Trends: Rising house prices can incentivise more construction, which shifts labour and capital resources to the construction sector, demonstrating resource reallocation.

• Supermarket Pricing Wars: In the UK grocery sector, when Aldi or Lidl reduce prices, larger competitors often follow — affecting consumer choices and supplier relationships.

Embedding such examples in class discussion brings relevance and helps students connect theory to the world around them — a key principle of Enterprise Skills’ commercial awareness model.

How It’s Assessed

Cambridge IGCSE Economics assessment includes structured and data-response questions. This topic may appear in several formats:

• Short-answer questions: Define or explain the impact of a price change.

• Data-response tasks: Interpret tables or graphs showing price trends and consumer/producer reactions.

• Extended writing (6–8 marks): Evaluate consequences of a specific price change (e.g. “Discuss the effects of an increase in the price of wheat”).

Command words to note:

• Explain – focus on cause-effect chains

• Analyse – unpack interrelated impacts

• Discuss/Evaluate – weigh multiple outcomes, possibly with a judgment

Encouraging students to use real-world data in their responses can lift performance in higher-mark questions.

Enterprise Skills Integration

Understanding the consequences of price changes directly supports three of Enterprise Skills’ core themes:

• Commercial Awareness: Students see how prices drive business strategy — e.g. a firm raising prices to increase profit might lose customers if demand is price sensitive.

• Decision-Making and Problem-Solving: Learners must assess multiple outcomes of a price change and consider who benefits or loses — a core exam skill and real-world competency.

• Workplace Readiness: In roles from retail to finance, price sensitivity analysis and market response are key. This topic builds the language and logic young people need for those decisions.

Enterprise Skills simulations give learners opportunities to adjust prices in a virtual market — experiencing firsthand the challenges of pricing decisions in competitive markets.

Careers Links

This topic aligns directly with Gatsby Benchmarks 4 and 5, especially when supported by tools like Skills Hub Futures or real employer case studies. It supports career pathways in:

• Retail and Buying – understanding how price shifts impact stock decisions

• Finance and Economics – forecasting, market modelling, and behavioural economics

• Marketing – setting price points based on consumer demand

• Logistics and Supply Chain – reacting to cost changes in production inputs

Linking curriculum content to real careers can be delivered through embedded career context activities in Skills Hub Futures or through employer challenge case studies provided in the platform.

Teaching Notes

Suggested approach:

• Begin with a price change scenario (e.g. chocolate price rises due to cocoa shortages)

• Use demand and supply diagrams to explore producer and consumer reactions

• Introduce secondary consequences — e.g. substitute product use, fall in sales

Common pitfalls:

• Students often assume all price rises are negative

• Difficulty distinguishing movement along vs shift of demand/supply curves

• Confusion between resource allocation and output levels

Extension activities:

• Run a mini simulation or role-play where students act as firms responding to price changes

• Use Skills Hub’s pricing tools or commercial scenario exercises to deepen understanding

• Link to global issues — e.g. food inflation and its societal impacts

Active learning tip: Ask students to bring in real price changes they’ve noticed (e.g. school canteen, bus fare), then discuss the causes and consequences in class. This improves retention and engagement.