Syllabus: Cambridge - IGCSE Economics
Module: 2.7 Price Elasticity of Demand (PED)
Lesson: 2.7.3 determinants of PED
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Introduction
In the Cambridge IGCSE Economics syllabus, section 2.7.3 on the determinants of Price Elasticity of Demand (PED) builds on foundational understanding of elasticity. This topic is not only central to student performance in exams, but also to their real-world economic literacy.
Understanding what makes demand more or less responsive to price changes prepares students to evaluate strategic decisions made by firms and governments. This knowledge feeds directly into commercial awareness and workplace readiness—two pillars of Enterprise Skills’ curriculum integration framework.
This article provides full alignment with the IGCSE Economics specification, alongside insights for teaching, real-life relevance, and assessment preparation.
Key Concepts
The Cambridge IGCSE Economics specification (0455) expects students to:
Identify and explain the main determinants of PED, including:
Availability of substitutes
Proportion of income spent on the good
Necessity vs luxury status
Time period considered
Addictive nature of the product
Understand how each factor influences whether demand is elastic or inelastic
Link elasticity to consumer responsiveness and revenue implications for producers
These concepts support broader curriculum themes such as resource allocation and market efficiency, preparing students to evaluate pricing decisions in both private and public sectors.
Real-World Relevance
Understanding the determinants of PED helps students decode business and government decisions. Here are two practical examples:
1. Public Transport Fare Increases:
In urban areas like London, when bus or train fares rise, passenger numbers tend not to drop significantly. Why? There are limited substitutes for commuters, making demand inelastic. This insight allows governments to raise revenue without a drastic fall in usage—a key application of PED in policymaking.
2. Smartphone Pricing Strategies:
Apple’s iPhones demonstrate brand loyalty and product differentiation. Despite high prices, demand remains relatively inelastic due to perceived uniqueness and lack of true substitutes. Students can compare this with Android phones, where more price competition exists, often leading to more elastic demand.
These scenarios show how PED affects revenue forecasting, pricing strategy, and market entry decisions—a clear example of commercial awareness in action.
How It’s Assessed
In Cambridge IGCSE Economics, students can expect:
Data interpretation questions (e.g. “Using the table/graph, explain why demand for product X is price inelastic.”)
Short-answer questions using command words like “define”, “state”, and “explain”
Structured answers involving multi-mark responses (e.g. “Discuss the impact of substitutes on PED”)
Case study integration requiring application of PED to real-world scenarios
Effective preparation includes identifying command terms and using structured paragraph responses—definition, application, and evaluation.
Enterprise Skills Integration
PED offers rich opportunities to build workplace readiness, decision-making, and problem-solving skills:
Decision-Making & Problem-Solving: Students evaluate how businesses react to elastic or inelastic demand (e.g. lowering prices, product bundling).
Commercial Awareness: Understanding elasticity enables better analysis of how companies set pricing policies in response to market forces.
Cross-Curricular Application: PED connects with maths (percentages and ratios), PSHE (consumer behaviour), and even geography (transport and development).
Enterprise Skills’ Skills Hub Futures platform supports this with simulated pricing scenarios where students predict outcomes based on elasticity—meeting Gatsby Benchmarks and preparing students for real-world pricing decisions.
Careers Links
Linking curriculum content like PED to future pathways directly supports Gatsby Benchmark 4 (linking curriculum to careers):
Marketing and Pricing Analysts: Use PED to forecast demand shifts based on pricing strategies.
Policy Advisors in Transport and Health: Assess whether price changes will alter public behaviour (e.g. sugar tax or congestion charges).
Retail Managers: Adjust promotions and stock based on expected price sensitivity.
Economists and Data Analysts: Model consumer behaviour using elasticity data.
Our employer-validated simulations also link elasticity analysis with decision-making in roles like brand strategy, operations management, and public sector planning.
Teaching Notes
Tips for delivery:
Use simple graphs and scenarios to contrast elastic vs inelastic demand.
Link elasticity to student experiences: mobile data plans, fast food pricing, or train tickets.
Use mini debates or “what if” scenarios (e.g. What if petrol prices doubled overnight?) to foster engagement and evaluation skills.
Common pitfalls to avoid:
Confusing PED with “demand” itself—reinforce that it measures responsiveness, not quantity.
Mixing up factors that shift demand with factors that affect elasticity.
Misinterpreting values (e.g. PED of -2 is more elastic than -0.5).
Extension activities:
Have students research elasticity in a chosen industry (e.g. fashion, food delivery).
Use Enterprise Skills simulations to apply elasticity in team-based pricing challenges.
Ask students to predict how the elasticity of a product might change over time, such as during a recession.
