Elasticity

Revise Elasticity for Economics (Edexcel) 4EC1 (O Level) — revision notes and instant AI marking.

📖 Revision notes · preview

Edexcel IGCSE Economics

Elasticity

Elasticity measures how much one thing changes when another thing changes — and once you can measure that, you can predict how buyers, sellers, and governments will actually behave.

Summary — What This Chapter Covers

PED (Price Elasticity of Demand) — how responsive quantity demanded is to a change in price.
PED values range from 0 (perfectly inelastic) to ∞ (perfectly elastic), and determine whether firms should raise or lower prices to boost revenue.
PES (Price Elasticity of Supply) — how responsive quantity supplied is to a change in price, driven by factors like time, storage, and spare capacity.
Primary commodities (crops, raw materials) tend to have lower PES than manufactured goods, because they're slow to produce and hard to store.
YED (Income Elasticity of Demand) — how responsive quantity demanded is to a change in consumer income. The sign (positive/negative) tells you the type of good.
All three elasticities matter to real decision-makers: firms setting prices, and governments designing taxes and subsidies.

1. Price Elasticity of Demand (PED)

1What PED Actually Means

The law of demand tells you the direction: if price goes up, quantity demanded goes down. But it doesn't tell you . That's the gap PED fills.

Think of two products: cigarettes and a specific brand of orange juice. If both go up in price by 10%, will people cut back the same amount? No — smokers are addicted, so they barely reduce their purchases. Orange juice buyers, on the other hand, can easily switch to a different brand or apple juice instead, so their quantity demanded drops a lot more. PED is the number that captures this difference in "sensitivity."

Formula

PED = (% change in quantity demanded) ÷ (% change in price)

In words: "For every 1% the price moves, how many % does quantity demanded move in response?"

The % Change Formula (you'll use this constantly)

% Change = [(new value − old value) ÷ old value] × 100

Worked Example

A firm raises the price of its product from $10 to $15. Sales fall from 100 to 40 units per day. Find the PED.

Step 1 — % change in quantity demanded: (40−100)/100 × 100 = −60%

Step 2 — % change in price: (15−10)/10 × 100 = 50%

Step 3 — Divide: PED = −60 ÷ 50 = −1.2

Step 4 — Drop the sign: PED will come out negative (price up → quantity down, or vice versa) — that's just the law of demand doing its job. Economists ignore the minus sign and just report the size: PED = 1.2

Why ignore the sign?

The negative sign doesn't tell you anything new — it's baked into the law of demand. What actually matters for decision-making is the size of the number: is 1.2 a big response or a small one? Stripping the sign lets you compare products directly.

Practice Question

A bakery increases the price of croissants from £2.00 to £2.20. Quantity demanded falls from 500 to 460 per day. Calculate the PED.

2Interpreting PED Values — the Full Spectrum

PED can be anywhere from 0 to infinity. Where a product sits on this scale tells you a completely different story about consumer behaviour:

Value	Name	What's Happening	Example
0	Perfectly Inelastic
0 → 1
1	Unitary

🔓 Read the full Elasticity note → You're seeing the preview · sign in to read it all

Also in the full note

3What Determines PED?
4PED and Total Revenue — the Big Payoff
5Why PED Matters to Real Stakeholders
1What PES Means
2Interpreting PES Values
3What Determines PES?
4Primary Commodities vs Manufactured Goods
5Why PES Matters to Real Stakeholders

What's inside

📖 Revision notes 🎯 Learn mode ✦ AI flashcards ✓ Instant AI marking 🧊 3D explorers 🧪 Experiments & simulations 📈 Progress tracking

📄 Practise Elasticity with Economics (Edexcel) 4EC1 past papers Every paper with its mark scheme — answer online, marked instantly. Open →

Read the full Elasticity notes free

That's the preview — create a free account to read the rest, plus flashcards and practice questions with instant AI marking. No credit card.

Unlock the full notes free →

More Economics (Edexcel) topics

The Economic Problem

Characteristics of Mixed Economies

Price Elasticity of Demand (PED)

Production & Productivity

The Nature of the Economic Problem

Costs, Revenues & Profit

Understanding Externalities

The Underlying Economic Assumptions

The Factors of Production

Demand