Syllabus: Cambridge - IGCSE Economics
Module: 2.8 Price Elasticity of Supply (PES)
Lesson: 2.8.4 Significance of PES
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Introduction
This article explores section 2.8.4 of the Cambridge IGCSE Economics syllabus, focusing on the Significance of Price Elasticity of Supply (PES). It supports educators teaching the internationally recognised Cambridge IGCSE (0455/2281) specification, helping learners understand not just how PES is calculated, but why it matters in real-world economic decision-making.
By grasping the significance of PES, students develop a key part of their economic reasoning toolkit. This content supports curriculum delivery while simultaneously aligning with Gatsby Benchmark 4 by linking economic theory to real-world career contexts.
Key Concepts
According to the Cambridge IGCSE Economics syllabus, students must understand:
Definition of PES: The responsiveness of quantity supplied to a change in price.
Factors affecting PES: Time, availability of stock, spare capacity, mobility of factors of production.
Significance of PES: Why it matters to different stakeholders — producers, consumers, and governments.
The significance lies in how PES influences decision-making:
If supply is elastic, firms can respond quickly to price rises, potentially increasing profits.
If supply is inelastic, prices may rise sharply in response to demand, which could lead to shortages or inflationary pressures.
Students are expected to go beyond definitions and calculations, analysing why PES is important and how it affects market dynamics.
Real-World Relevance
Case Example: Semiconductor Shortage
During 2020–2022, global semiconductor supply struggled to meet demand due to COVID-19 disruptions. The PES of microchips was highly inelastic in the short term — factories couldn’t ramp up production quickly due to limited capacity and long lead times. The result? Prices surged, and production delays affected everything from smartphones to cars.
Agricultural Markets
In contrast, agricultural goods often exhibit inelastic PES in the short term due to planting and harvesting cycles. For example, a sudden rise in wheat prices cannot lead to an immediate supply increase — crops need time to grow.
By discussing these examples, students see how PES shapes pricing, investment, and policy decisions in volatile or essential markets.
How It’s Assessed
In Cambridge IGCSE Economics exams, the Significance of PES is assessed through:
Short-answer questions: Define or calculate PES.
Data response questions: Interpret supply elasticity in a real-world context.
Extended writing: Analyse the implications of PES for producers, governments, or consumers.
Command words include:
Explain: Requires reasoning linked to cause and effect.
Analyse: Break down implications of PES in context.
Discuss/Evaluate: Weigh up consequences for different stakeholders.
Sample question:
“Discuss why knowledge of the price elasticity of supply is useful for producers in planning production decisions.”
This tests both technical understanding and the ability to apply it to economic reasoning — an essential IGCSE assessment objective.
Enterprise Skills Integration
Understanding PES directly supports the development of decision-making and problem-solving skills. Students assess how businesses respond under different supply conditions, using limited information to predict and react to market signals.
In Enterprise Skills’ business simulations, learners apply PES thinking when deciding how quickly to ramp up production based on forecasted demand — mirroring strategic decisions made in real firms.
Key enterprise skills linked to PES:
Strategic thinking: Should a firm invest in more flexible production?
Data interpretation: What does elasticity data suggest about market risk?
Adaptability: How quickly can a business respond to market shocks?
This links to our thematic pillars of Commercial Awareness and Decision-Making & Problem-Solving, core components of Skills Hub Futures.
Careers Links
This topic aligns strongly with Gatsby Benchmark 4 — linking curriculum to careers. Understanding PES is essential in roles such as:
Supply Chain Analysts – assess production flexibility and responsiveness.
Operations Managers – make decisions about scaling production.
Policy Advisers – evaluate market elasticity when designing subsidies or taxes.
Through Skills Hub Futures, students encounter industry-led case studies and real job role profiles, building both their commercial literacy and workplace readiness.
Employers consistently cite commercial awareness as a gap among school leavers. Teaching PES in context helps fill that gap, preparing students for roles across sectors.
Teaching Notes
Tips for Delivery:
Use recent supply shocks (semiconductors, gas prices, food supply) to make content tangible.
Flip the classroom: assign basic PES videos as pre-learning, and use lesson time for discussion and case studies.
Use mini case study cards: students role-play as producers responding to price changes.
Common Pitfalls:
Confusing PES with PED (Price Elasticity of Demand).
Treating PES as static rather than context-dependent.
Overlooking time as a critical factor (short run vs long run elasticity).
Extension Ideas:
Ask students to research a local business and evaluate how elastic their supply might be.
Simulate a supply chain crisis in class — can students decide how to respond?
Suggested Tool:
Skills Hub Business: Includes a PES decision simulator aligned to this syllabus point, allowing students to test outcomes of elastic vs inelastic strategies.
