Syllabus: Cambridge - IGCSE Economics
Module: 2.7 Price Elasticity of Demand (PED)
Lesson: 2.7.4 PED and Total Spending on a Product/Revenue

Introduction

This article explores Cambridge IGCSE Economics 2.7.4: Price Elasticity of Demand and Total Spending on a Product/Revenue. As part of the Cambridge IGCSE Economics syllabus, this module builds on students’ understanding of demand and elasticity, linking theoretical knowledge to practical business decision-making. It supports the development of commercial awareness—a core career readiness skill—and aligns with Gatsby Benchmark 4 by connecting classroom content to real-world economic scenarios.

Key Concepts

According to the Cambridge IGCSE Economics syllabus, this subtopic focuses on:

• Definition and Interpretation: How price elasticity of demand (PED) affects total revenue.

• Elastic vs Inelastic Demand:

  • If demand is elastic (PED > 1), a price drop leads to a rise in total revenue, while a price increase causes revenue to fall.

  • If demand is inelastic (PED < 1), a price increase leads to a rise in total revenue, while a price cut reduces revenue.

• Graphical and Numerical Analysis: Students must be able to analyse demand curves and apply percentage change calculations to interpret outcomes.

• Real-world reasoning: Apply understanding to decisions made by producers (e.g. price changes to maximise revenue).

This concept links directly to earlier content on demand and elasticity and sets the foundation for evaluating business strategies and market interventions.

Real-World Relevance

Understanding the relationship between PED and total revenue is essential for real-life pricing decisions in sectors ranging from retail to transport. Consider these examples:

• Netflix and streaming services: When Netflix increased its subscription price in various markets, analysts examined whether demand was elastic (would users cancel?) or inelastic (would most continue paying?) to predict revenue outcomes.

• Public transport pricing: In London, TfL often debates fare increases. If demand for buses or the Tube is inelastic (essential service), increasing fares can raise total revenue—up to a point.

• Supermarkets: Promotional price drops on goods like crisps or soft drinks only increase revenue if the quantity sold rises by a proportionally greater amount (i.e., demand is elastic).

These examples illustrate how commercial decisions rely on a solid understanding of elasticity—a core element of commercial literacy.

How It’s Assessed

In the Cambridge IGCSE exam, this topic may appear in:

• Short-answer questions: e.g. “Explain what happens to total revenue if the PED is greater than 1 and price falls.”

• Diagram-based questions: Candidates might be required to annotate or interpret a demand curve showing different elasticities.

• Data response or case study questions: Students may be asked to evaluate price changes using data in a business scenario.

Command words to focus on:

• Explain: Give reasons why revenue increases or decreases.

• Calculate: Work out percentage changes and revenue effects.

• Analyse: Interpret the consequences of price changes based on elasticity.

Teachers should encourage fluency with formulas and an intuitive grasp of how elasticity shapes decision-making.

Enterprise Skills Integration

This lesson is an ideal opportunity to embed decision-making and problem-solving skills:

• Students use data to decide whether to raise or lower prices to maximise revenue.

• Scenarios ask students to weigh trade-offs between price and sales volume, encouraging critical thinking.

• Incorporating active learning tools—like business simulations—enhances retention and engagement. Research shows active learning methods deliver 73% better comprehension than traditional approaches.

Using tools from Skills Hub Futures, educators can frame elasticity problems in the context of real company challenges, giving students a simulated decision-making role.

Careers Links

This topic links well to several Gatsby Benchmarks:

• Benchmark 4: Curriculum to careers – students see how economic thinking applies to sectors like retail, transport, and entertainment.

• Benchmark 5: Employer encounters – case studies or employer videos (included in Enterprise Skills platforms) can show how firms use elasticity in pricing decisions.

• Benchmark 6: Workplace experiences – use simulations to let students act as pricing strategists in a virtual business setting.

Relevant roles that apply these skills:

• Marketing Analyst

• Revenue Manager

• Product Pricing Specialist

• Retail Buyer

• Economist

Understanding elasticity helps students make sense of pricing decisions in almost every sector, enhancing workplace readiness.

Teaching Notes

Tips for delivery:

• Start with a recap of elasticity basics before introducing revenue impacts.

• Use visual aids: dynamic demand curve diagrams that show revenue changes with price shifts.

• Introduce mini-scenarios from real businesses to anchor the maths in decision-making.

Common pitfalls:

• Confusing total revenue with profit.

• Misinterpreting elasticity values (e.g. thinking PED = -2 means inelastic).

• Ignoring the direction of price changes when applying PED logic.

Extension ideas:

• Create a “You’re the pricing manager” activity where students are given data and must decide pricing strategies.

• Integrate cross-curricular links to maths (percentage change, graph interpretation).

• Use the Skills Hub Business or Futures tools for ready-made classroom simulations mapped to IGCSE learning outcomes.