Syllabus: Cambridge - IGCSE Economics
Module: 2.7 Price Elasticity of Demand (PED)
Lesson: 2.7.5 significance of PED
Jump to Section:
Introduction
The Cambridge IGCSE Economics 2.7.5 module focuses on the significance of price elasticity of demand (PED) — a concept critical not only for academic success but also for commercial awareness and decision-making in the real world. This syllabus point is part of a broader exploration into supply and demand dynamics, helping students evaluate how consumers and producers react to price changes.
This topic sits within the IGCSE Economics Unit 2.7, which covers Price Elasticity of Demand, and aims to help students understand why PED matters for businesses and governments, not just how it is calculated.
Key Concepts
The Cambridge IGCSE Economics syllabus specifies the following learning outcomes for 2.7.5:
Interpret the significance of PED values: Understand whether a good is elastic, inelastic, or unitary in response to price changes.
Use PED to inform decision-making: Apply elasticity data to pricing and revenue strategies in different sectors.
Evaluate impacts on total revenue: Understand how elasticity affects business income when prices are adjusted.
Understand how PED influences taxation and subsidy policies: Recognise how governments use elasticity data to design fiscal policy.
This topic requires both numerical fluency and analytical thinking, as students must interpret coefficients and assess strategic implications.
Real-World Relevance
PED is a live concept in today’s economy. Here are two contemporary examples that illustrate its significance:
1. Transport Fares and Demand
When Transport for London (TfL) raised tube fares in 2024, elasticity was key to their forecast models. For inelastic demand routes (e.g. commuter services), higher prices led to increased revenue. However, for more discretionary travel, the opposite occurred.
2. Streaming Services
Netflix adjusted its UK pricing model in 2025. Subscription cancellations were closely analysed using PED data. It found that student users had a higher elasticity than older demographics, prompting targeted discounts to reduce churn.
These examples demonstrate how pricing decisions are rarely made without elasticity considerations, whether in public service delivery or commercial strategy.
How It’s Assessed
Cambridge IGCSE Economics assessments use a range of question styles to test understanding of PED’s significance:
Data Response Questions: Students might be asked to analyse changes in revenue following a price adjustment, supported by a PED coefficient.
Short Answer Questions: Define and explain what it means for a product to be price elastic/inelastic.
Extended Response Questions: Evaluate the usefulness of PED data to a firm in a competitive market.
Typical command words include “explain,” “analyse,” “calculate,” and “evaluate.” Assessment Objectives 2 and 3 are often targeted — focusing on application and analysis skills.
Teaching tip: Encourage students to go beyond formula memorisation by interpreting PED coefficients in context.
Enterprise Skills Integration
This lesson naturally strengthens several enterprise skills aligned with our thematic framework:
Decision-Making & Problem-Solving: Students consider how pricing choices affect revenue, stakeholder reactions, and consumer behaviour.
Commercial Awareness: Learners explore how businesses operate in real markets and why pricing strategy must reflect demand responsiveness.
Data Literacy: Understanding coefficients, calculating changes in revenue, and applying numerical data form a core part of the lesson.
Using Skills Hub Futures or live simulations, students can experiment with pricing decisions and see real-time impacts — developing deeper commercial instincts.
Careers Links
Understanding the significance of PED opens pathways to a range of careers where market responsiveness and consumer insight are critical:
Marketing Analyst: Uses PED to understand consumer price sensitivity and optimise product pricing.
Public Policy Advisor: Recommends taxation or subsidy strategies based on demand responsiveness.
Retail Manager: Applies PED when setting prices during sales or launching new products.
Aligned with Gatsby Benchmark 4, this topic links curriculum to real careers. Using case studies from the Skills Hub Futures platform, students see how employers apply PED in pricing and strategic decisions.
Teaching Notes
Teaching Tips:
Use practical scenarios such as pricing of snacks, train tickets, or mobile data bundles to bring PED to life.
Incorporate role-play: One group acts as a firm debating a price rise, the other as consumers reacting — linked by PED insights.
Include mini data sets to practice calculating and interpreting elasticity values.
Common Pitfalls:
Students often confuse inelastic with perfectly inelastic — clarify the spectrum of values.
Misinterpreting negative PED values — stress the importance of absolute values in analysis.
Over-relying on rote calculation without understanding what the numbers imply for decisions.
Extension Activities:
Skills Hub simulation: Have students act as pricing managers using real-time feedback to maximise revenue.
Investigate how price discrimination strategies (e.g. student discounts) are based on elasticity differences.
