Syllabus: SQA - Higher Course Spec Economics
Module: Economics of the Market
Lesson: Price Elasticity of Demand (PED)

Introduction

Price elasticity of demand (PED) is a core element of the SQA Higher Economics course, specifically within the “Economics of the Market” unit. It builds on students’ understanding of supply and demand by showing how responsive consumers are to price changes, and why that matters for businesses, governments, and markets. This topic directly supports the course’s aim to develop economic reasoning and apply real-life analysis to familiar and unfamiliar contexts.

For teachers and SLT, this topic hits a sweet spot: it’s syllabus-aligned, numerically rigorous, and instantly applicable. It opens up valuable conversations around resource allocation, decision-making, and economic behaviour.

Key Concepts

Within the SQA Higher specification, students are expected to understand the following:

• Definition of PED: The responsiveness of quantity demanded to a change in price.

• Calculating PED: Using 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​

• Types of elasticity:

  • Perfectly elastic (PED = ∞)

  • Elastic (PED > 1)

  • Unitary elastic (PED = 1)

  • Inelastic (PED < 1)

  • Perfectly inelastic (PED = 0)

• Interpreting PED values: Understanding what they reveal about consumer behaviour.

• Determinants of PED: Availability of substitutes, necessity vs luxury, proportion of income spent, time period considered.

• Implications for firms and governments: Pricing strategy, taxation, subsidy design, and revenue forecasting.

These core ideas support wider understanding of how markets work, preparing students for more complex topics like market failure and government intervention later in the course.

Real-World Relevance

PED isn’t just an academic construct. It shows up in everything from train fares to cinema pricing. Consider these examples:

• Public transport pricing: Peak vs off-peak tickets reflect inelastic demand during commuter hours. Operators know demand won’t drop much even with a price rise.

• Fuel taxation: Governments impose high fuel duties knowing demand is relatively inelastic, so it remains a reliable revenue stream.

• Streaming services: When Netflix raises its prices, how many users drop off? The answer depends on PED—data that shapes global pricing strategy.

Bringing in local or live examples, such as supermarket price changes or energy costs, helps students connect the concept to decisions that affect them personally.

How It’s Assessed

In the SQA Higher exam, PED may feature in:

• Short-answer questions: Definitions, formula recall, simple calculations.

• Data-response questions: Interpreting real or hypothetical scenarios using PED.

• Extended responses: Evaluating the impact of price elasticity on businesses or governments.

Command words to watch include:

• Define: e.g. “Define price elasticity of demand.”

• Calculate: often paired with structured data.

• Explain: e.g. “Explain two factors that affect the price elasticity of demand.”

• Evaluate: e.g. “Evaluate how knowledge of PED might influence a firm’s pricing strategy.”

Assessment encourages both technical fluency and application. Diagrams are often useful but not always required.

Enterprise Skills Integration

PED is a rich opportunity to develop enterprise thinking. Here’s how:

• Problem-solving: Students weigh pricing decisions against customer response.

• Decision-making: Exploring how firms adjust strategy based on elasticity insights.

• Numeracy and critical thinking: Using data to calculate and interpret elasticity.

• Communication: Articulating economic reasoning clearly, both in writing and discussion.

Mini challenges—like designing a pricing plan for a startup based on PED data—turn this into an active learning experience.

Careers Links

Understanding PED equips students with skills relevant to:

• Economics and business analysis: Roles in market research, consulting, pricing strategy.

• Marketing: Tailoring prices and promotions based on consumer responsiveness.

• Public policy: Crafting taxes or subsidies with economic behaviour in mind.

• Retail and sales: Applying insights into customer behaviour to optimise revenue.

This links clearly to Gatsby Benchmark 4 (linking curriculum learning to careers) and Benchmark 5 (encounters with employers and employees), especially if you include examples from real organisations or guest speakers from pricing roles.

Teaching Notes

Planning Tips

• Start with concrete examples—price rises students have noticed and their reactions.

• Use visuals—graph PED values against steep/shallow demand curves.

• Practice calculations early with scaffolded support.

Common Pitfalls

• Confusing elasticity with slope: Reinforce that elasticity is a ratio, not just the look of the line.

• Misreading negative signs: Clarify that PED values are usually treated as absolute.

• Mixing up causes and effects: Emphasise the direction of change—price first, then demand.

Extension Activities

• Compare PED across goods (e.g. bread vs branded trainers).

• Debate a case study: “Should the government increase fuel tax?”

• Use online tools or simulations to model pricing scenarios and revenue outcomes.