Cambridge IGCSE 0455: Price Elasticity of Demand (PED) & Price Elasticity of Supply (PES) | Tutolia Study Library

Calculate PED and PES, interpret elastic vs inelastic demand curves, and evaluate how elasticity impacts firm total revenue and tax incidence for IGCSE 0455.

Subject: Economics | Grade Level: Grade 9-10 (IGCSE) | Curriculum: Cambridge IGCSE

Cambridge IGCSE: Price Elasticity of Demand (PED) & Price Elasticity of Supply (PES) (Economics)

Syllabus Code: 0455 · Topic Code: 2.5 · Level: Grade 9-10 (IGCSE)

Aligned with official Cambridge IGCSE examination standards and assessment objectives.

🎯 Official Syllabus Learning Objectives

Candidates should be able to:

• [x] Define and calculate Price Elasticity of Demand (PED) and Price Elasticity of Supply (PES)
• [x] Analyze determinants of PED (availability of substitutes, necessity vs luxury, proportion of income, time period)
• [x] Evaluate how a business should change price to maximize total revenue based on elastic vs inelastic PED

📐 Essential Formulas & Mathematical Equations

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\text{PED} = \frac{\% \Delta \text{Quantity Demanded}}{\% \Delta \text{Price}} = \frac{(Q_2 - Q_1)/Q_1}{(P_2 - P_1)/P_1}

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\text{PES} = \frac{\% \Delta \text{Quantity Supplied}}{\% \Delta \text{Price}}

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\text{Total Revenue (TR)} = \text{Price} \times \text{Quantity}

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💡 Conceptual Breakdown & Core Revision Notes

Mastering Price Elasticity of Demand (PED) & Price Elasticity of Supply (PES) is critical for scoring Grade 9 / A* in Cambridge IGCSE Economics. When preparing for exam papers, examiners prioritize precise definitions, proper scientific command-word execution (State, Describe, Explain, Evaluate), and dimensional unit consistency.

Methodical Problem-Solving Framework

1. List Given Variables: Write down all given quantities with their respective SI units and identify the target variable.
2. Standardise Units: Always convert non-standard units (e.g. grams to kilograms, centimeters to meters, cm³ to dm³, hours to seconds).
3. State the Base Formula: Always state the general equation explicitly before substituting numbers to secure method marks.
4. State Final Value with Units: Quote your final calculated value to the required number of significant figures (typically 2 or 3 significant figures in Cambridge & IB) followed by the correct unit.

⚠️ Examiner Warnings & Common Student Pitfalls

Chief Examiner Advice:

When demand is price elastic (|PED| > 1), price and total revenue move in OPPOSITE directions (lower price to raise revenue). When inelastic (|PED| < 1), raise price to increase revenue.

📝 Worked Exam Exemplar (Mark Scheme Breakdown)

Question:

When the price of train tickets rises from $10 to $12, daily demand falls from 2,000 to 1,800 tickets. Calculate PED and advise whether the price rise increased revenue.

Model Answer & Marking Rubric:

% change in Qd = (-200 / 2000) 100 = -10%. % change in P = (+2 / 10) 100 = +20%. PED = -10% / 20% = -0.5 (price inelastic). Initial TR = $20,000; New TR = $12 * 1,800 = $21,600. Revenue increased by $1,600.

🧠 Rapid Active-Recall Study Deck (Spaced Repetition)

Test your immediate retention before leaving this page:

1. Question: What is the fundamental definition associated with Price Elasticity of Demand (PED) & Price Elasticity of Supply (PES)?

Answer: Check the primary learning objective in the checklist above.

1. Question: Which governing formula links the main physical quantities in this topic?

Answer: `\text{PED} = \frac{\% \Delta \text{Quantity Demanded}}{\% \Delta \text{Price}} = \frac{(Q_2 - Q_1)/Q_1}{(P_2 - P_1)/P_1}`.

1. Question: What classic trap do examiners frequently set on this topic?

Answer: When demand is price elastic (|PED| > 1), price and total revenue move in OPPOSITE directions (lower price to raise revenue). When inelastic (|PED| < 1), raise price to increase revenue.

Exam Questions & Key Takeaways (FAQ)

When the price of train tickets rises from $10 to $12, daily demand falls from 2,000 to 1,800 tickets. Calculate PED and advise whether the price rise increased revenue.

% change in Qd = (-200 / 2000) 100 = -10%. % change in P = (+2 / 10) 100 = +20%. PED = -10% / 20% = -0.5 (price inelastic). Initial TR = $20,000; New TR = $12 * 1,800 = $21,600. Revenue increased by $1,600.

What is the key examiner tip and common student pitfall for Price Elasticity of Demand (PED) & Price Elasticity of Supply (PES)?

When demand is price elastic (|PED| > 1), price and total revenue move in OPPOSITE directions (lower price to raise revenue). When inelastic (|PED| < 1), raise price to increase revenue.

What are the official syllabus learning objectives for Cambridge IGCSE 0455: Price Elasticity of Demand (PED) & Price Elasticity of Supply (PES)?

Define and calculate Price Elasticity of Demand (PED) and Price Elasticity of Supply (PES); Analyze determinants of PED (availability of substitutes, necessity vs luxury, proportion of income, time period); Evaluate how a business should change price to maximize total revenue based on elastic vs inelastic PED