Syllabus: Cambridge - IGCSE Economics
Module: 2.7 Price Elasticity of Demand (PED)
Lesson: 2.7.2 Calculation of PED

Introduction

This article supports the Cambridge IGCSE Economics syllabus, specifically section 2.7.2: Calculation of Price Elasticity of Demand (PED). It provides teaching insight, real-world context, and assessment guidance to help educators meet both curriculum objectives and Gatsby Benchmarks. This section of the course enables students to quantify how demand responds to price changes – a foundational commercial literacy skill relevant to every industry.

Key Concepts

According to the Cambridge IGCSE Economics syllabus, learners should be able to:

• Understand and define price elasticity of demand (PED)

• Apply the formula:

  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 values of PED:

  • PED > 1: Elastic demand

  • PED < 1: Inelastic demand

  • PED = 1: Unitary elasticity

• Identify factors influencing PED:

  • Availability of substitutes

  • Proportion of income spent

  • Necessity vs luxury goods

  • Time period under consideration

• Understand implications for total revenue when prices change

This concept links directly to the broader curriculum themes of supply and demand, consumer behaviour, and market dynamics.

Real-World Relevance

PED is used daily by businesses and governments. For example:

• Supermarkets assess PED when pricing essentials like bread. A small price increase usually won’t affect demand much – inelastic.

• Technology firms like Apple face more elastic demand for luxury items such as iPhones, where a price hike may reduce sales noticeably.

• Transport providers often have inelastic demand in the short term, allowing peak-time fare increases without much reduction in passenger numbers.

A timely example: During global inflation surges (2022–2024), companies like Unilever raised prices on everyday goods. They analysed PED to understand which products could bear higher prices without significant drops in demand.

How It’s Assessed

Cambridge typically assesses this topic through:

• Short-answer calculations:

  • E.g., “Calculate the PED if price rises from £5 to £6 and quantity falls from 100 to 80 units.”

• Interpretative questions:

  • “What does a PED of -1.5 imply for a business raising prices?”

• Application to context:

  • Questions embedded in case studies, requiring students to interpret PED results in relation to total revenue and pricing decisions.

• Command words:

  • Calculate, explain, analyse, and evaluate are frequently used.

Students are expected to:

• Show full working for calculations

• Use the formula accurately

• Link results to business outcomes (e.g. pricing strategy, revenue impact)

Enterprise Skills Integration

Understanding PED develops decision-making and problem-solving abilities. Students must:

• Evaluate scenarios with conflicting outcomes (e.g., price increase vs revenue drop)

• Use data to make strategic choices (e.g., which product lines to discount)

• Interpret consequences of decisions across time and market segments

These are core enterprise competencies within our framework of commercial awareness and strategic thinking.

Enterprise Skills tools like simulation-based pricing scenarios from the Skills Hub allow students to test outcomes, adjust strategies, and learn from real-time feedback. These tools promote measurable improvements in higher-order thinking and engagement.

Careers Links

Understanding PED connects directly to Gatsby Benchmark 4 – linking curriculum learning to careers. Real-world applications span across roles such as:

• Marketing Analyst – determining price sensitivity for new products

• Retail Manager – pricing strategy for seasonal goods

• Policy Advisor – understanding consumer response to tax changes

• Data Analyst – forecasting changes in demand with dynamic pricing models

Through Skills Hub Futures, this concept is explored using career-relevant activities like:

• Revenue forecasting challenges

• Employer-set pricing simulations

• Case studies from real sectors (e.g. retail, transport, energy)

These experiences meet Gatsby Benchmarks 5 and 6, offering encounters with employers and workplace scenarios.

Teaching Notes

Tips for delivery:

• Start with relatable products (e.g. fast food, phone contracts) to anchor the concept

• Use mini-quizzes and calculation races for engagement

• Plotting demand curves before and after price changes helps visualise elasticity

• Use flipped classroom models – assign formula practice for homework, and spend class time applying it to business cases

Common pitfalls to address:

• Confusion between elasticity of demand and elasticity of supply

• Misinterpreting negative signs in PED values

• Forgetting to convert changes into percentages

Extension ideas:

• Compare PED across different markets (e.g. luxury vs necessity)

• Invite local business owners to explain how they use pricing strategies

• Explore dynamic pricing in tech (Uber, Amazon) using real-time data where available

Recommended Tool:

• The Break-even calculator and Elasticity Explorer tools in Skills Hub Business can help reinforce these concepts interactively.