Pearson Edexcel International GCSE Economics: Price, supply and income elasticity (4EC1) – Revision Notes

These notes condense section 1.1.4 (statements a to s) of the Pearson Edexcel International GCSE Economics (4EC1) specification, Issue 3, February 2026, into recall form. The subject is not tiered. For fuller explanations, go to the study guide; when you are ready, work through the practice questions. Other links: the Edexcel IGCSE Economics hub, the printable checklist and the free diagnostics. All firms, countries and figures are invented.

The three formulas

Measure	Formula	Usual sign
PED (a-c)	% change in quantity demanded ÷ % change in price	Negative
PES (h-j)	% change in quantity supplied ÷ % change in price	Positive
YED (o-q)	% change in quantity demanded ÷ % change in income	Positive or negative

Percentage change = (new − old) ÷ old × 100.

Steps to follow

1. Work out each percentage change from the old value.
2. Divide quantity change by the price (or income) change.
3. Keep the sign in the working. Judge the size.
4. State the meaning in words: “demand is price inelastic because the fall in quantity is smaller than the rise in price”.

Definitions to learn (two parts each)

• PED: how strongly buyers change the amount they demand when price changes.
• PES: how strongly producers change the amount they supply when price changes.
• YED: how strongly the amount demanded changes when income changes.

Interpreting values (PED and PES: e, l)

Value (ignore sign)	Name	Curve
0	Perfectly price inelastic	Vertical
0 to 1	Price inelastic	Steeper
1	Unitary	Demand curve that is a rectangular hyperbola; straight supply line through the origin
Above 1	Price elastic	Flatter
Infinity	Perfectly price elastic	Horizontal

Steeper and flatter only compare curves drawn on the same axes. On one straight demand curve, PED varies from point to point.

Factors (f, m)

PED factor	Makes demand more elastic	Makes demand less elastic
Substitutes	Many close substitutes	Few or none
Degree of necessity	A luxury	A necessity
Percentage of income	A large share of income	A tiny share
Time	A longer period	A short period

PES factor	Makes supply more elastic	Makes supply less elastic
Factors of production	Easy to find and move	Scarce or specialised
Stocks	Large stocks held	No stocks
Spare capacity	Unused machines and staff	Full capacity
Time	Long run	Short run

Primary versus manufactured (n). Manufactured goods: usually more elastic supply (stocks, extra shifts, spare capacity). Primary products: usually less elastic in the short run (growing seasons, weather, mine development times).

Total revenue test (g)

Total revenue = price × quantity.

Price change	Revenue rises	Revenue falls
Price falls	Demand elastic	Demand inelastic
Price rises	Demand inelastic	Demand elastic

Worked reminder. A kiosk cuts a price from 25.00 to 22.50 (−10%). Sales rise from 600 to 720 (+20%). PED = 20 ÷ −10 = −2.0, so demand is elastic. Revenue rises from 15,000 to 16,200, which matches the test.

YED types (r)

YED	Type
Above 1	Luxury good
0 to 1	Normal good
Below 0	Inferior good

Worked reminder. Income falls 10% and quantity demanded falls 25%. YED = −25 ÷ −10 = +2.5, a luxury good.

PES reminder. Price rises 15% and quantity supplied rises 9%. PES = 9 ÷ 15 = 0.6, inelastic.

Chains of reasoning to learn

Write factors as a chain, not a label.

• Substitutes: many close substitutes, so buyers switch when price rises, so quantity falls by a larger percentage than price, so demand is elastic.
• Percentage of income: a good takes a tiny share of income, so a price rise is hardly noticed, so quantity barely changes, so demand is inelastic.
• Time (demand): over months buyers find alternatives, so the response to a price rise grows, so demand is more elastic in the long run.
• Spare capacity: unused machines and staff, so output can rise quickly when price rises, so supply is elastic.
• Stocks: unsold goods in a warehouse, so they can be released as price rises, so supply is elastic.
• Time (supply): firms cannot add land or build factories at once, so supply is inelastic in the short run and more elastic later.

Diagram reminders (d, k)

Demand                          Supply
vertical = PED 0                vertical = PES 0
horizontal = PED infinite       horizontal = PES infinite
flatter of two = more elastic   flatter of two = more elastic
steeper of two = more inelastic steeper of two = more inelastic

Label both axes (price and quantity), label each curve, mark the original and new price and quantity, and say in a sentence what the diagram shows.

Why it matters (s)

Indirect taxes

• Inelastic demand: quantity falls little, so tax revenue is high and firms can pass more of the tax on.
• Elastic demand: quantity falls a lot, so tax revenue is lower and firms lose more sales.

Subsidies

• Elastic demand: a lower price raises consumption by a larger percentage.
• Inelastic supply: output cannot rise quickly, so the short-run effect on quantity is smaller.

Tax reminder. A tax of 0.30 raises a price from 3.00 to 3.30 (+10%). Sales start at 9,000.

• PED −0.4: quantity falls 4% to 8,640; tax revenue = 8,640 × 0.30 = 2,592.
• PED −2.0: quantity falls 20% to 7,200; tax revenue = 7,200 × 0.30 = 2,160.

Subsidy reminder. A subsidy of 1.20 cuts a price from 12.00 to 10.80 (−10%). Sales start at 2,000.

• PED −1.5: quantity rises 15% to 2,300; subsidy cost = 2,300 × 1.20 = 2,760.
• PED −0.4: quantity rises 4% to 2,080; subsidy cost = 2,080 × 1.20 = 2,496.

Changes in income

• Luxury goods: sales rise fastest when incomes rise and fall fastest in a downturn.
• Inferior goods: sales may rise when incomes fall.
• Governments use YED to forecast spending, tax receipts and which industries will grow.

Must-know distinctions

• Elastic versus inelastic: compare the two percentage changes, not the raw changes.
• PED versus YED: PED responds to the good’s own price. YED responds to income.
• PES versus PED: PES is usually positive and about producers. PED is usually negative and about buyers.
• Inferior versus luxury: inferior has negative YED. Luxury has YED above 1. Neither is about quality or price.
• Short run versus long run: both PED and PES are usually larger in the long run.

Evaluation prompts

When a question asks you to assess or evaluate, weigh the elasticity against something else.

• A tax on a necessity raises revenue, but it takes a larger share of low incomes.
• A subsidy raises output, but it costs the government money that has other uses.
• A luxury-goods firm gains most in a boom, but it is the most exposed in a recession.
• A single elasticity value is a short-run estimate. Check whether time could change it.
• A conclusion should choose a side and give the reason.

Quick self-test

1. Write down the formula for PED.
2. Price rises from 8 to 9. Quantity falls from 400 to 360. Calculate PED.
3. Name the type of demand when PED is 0.
4. A firm’s revenue rises after it cuts price. Is demand elastic or inelastic?
5. Give two factors that affect PES.
6. Price rises 20% and quantity supplied rises 30%. Calculate PES.
7. Income rises 8% and demand for a good rises 4%. Calculate YED and classify the good.
8. Income rises 5% and demand for a good falls 2%. Classify the good.
9. A tax raises the price of a good by 10%. PED is −0.5. By what percentage does quantity fall?
10. Why is the supply of a farm crop usually inelastic in the short run?
11. A tax raises a price by 6%. PED is −1.5. Quantity was 2,000. Find the new quantity.
12. Explain why a government raising money through an indirect tax prefers a good with inelastic demand.

Answers

1. PED = % change in quantity demanded ÷ % change in price.
2. Price +12.5%; quantity −10%; PED = −10 ÷ 12.5 = −0.8.
3. Perfectly price inelastic.
4. Elastic.
5. Any two of: factors of production, stocks, spare capacity, time.
6. 30 ÷ 20 = 1.5.
7. 4 ÷ 8 = +0.5; a normal good.
8. YED = −2 ÷ 5 = −0.4; an inferior good.
9. 0.5 × 10 = 5%.
10. A crop needs a growing season and depends on weather, so farmers cannot raise output quickly when price rises.
11. Quantity falls 1.5 × 6 = 9%, so the new quantity is 2,000 × 0.91 = 1,820.
12. The fall in quantity is proportionally smaller than the rise in price, so few sales are lost and the tax is paid on most of the original quantity, so tax revenue stays high.

Where marks are usually lost

• Using the later figure as the base of a percentage change.
• Giving a number with no interpretation, or an interpretation with no reference to the figures.
• Mixing up the revenue test: revenue that rises after a price cut points to elastic demand.
• Describing PED as “how much people want the good” rather than how responsive quantity is.
• Treating a steep line as “elastic”.
• Quoting a factor (“time”) without saying whether it makes demand or supply more or less elastic.
• Forgetting that a negative YED means an inferior good.
• Giving one-sided policy answers: tax and subsidy effects depend on both the elasticity and the aim.

Official syllabus

Source: Pearson Edexcel International GCSE in Economics (4EC1) specification, Issue 3, February 2026, published by Pearson Education Limited, section 1.1.4 Elasticity.