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

This guide teaches section 1.1.4 (statements a to s) of the Pearson Edexcel International GCSE Economics (4EC1) specification, Issue 3, February 2026. The content sits in Topic 1, The market system. The specification does not tier this subject, so every candidate studies the same content. Every firm, country, price and quantity below is invented for teaching, with prices in made-up currency units, and nothing here is a real statistic.

Companion pages: the revision notes, the practice questions, the Edexcel IGCSE Economics hub, the printable checklist and the free diagnostics. For the wider topic, see the market system study guide.

What this unit covers

Statements	What you must be able to do
1.1.4 a-c	Define PED, state its formula, calculate it from percentage changes
1.1.4 d-e	Show elastic and inelastic demand on diagrams; interpret values from perfectly inelastic to perfectly elastic
1.1.4 f-g	Explain the factors affecting PED; use total revenue to decide whether demand is elastic or inelastic
1.1.4 h-l	Define PES, state its formula, calculate it, draw and interpret it
1.1.4 m-n	Explain the factors affecting PES; give examples for manufactured and primary products
1.1.4 o-r	Define income elasticity of demand (YED), calculate it, classify luxury, normal and inferior goods
1.1.4 s	Explain why price and income elasticities matter to businesses and governments (indirect taxes, subsidies, changes in income)

The specification says quantitative questions are set in a business context. Its command-word table says that for Calculate, calculators may be used and workings should be given. Always write the working.

Price elasticity of demand (PED)

Definition (a). PED shows how strongly buyers change the amount they demand when the price of the good changes. Give two parts: it is a measure of responsiveness, and the thing that responds is quantity demanded.

Formula (b).

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

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

Calculation (c). A demand curve slopes downwards, so the two changes have opposite signs and PED is negative. Show the sign in your working, then judge the size.

Worked example 1. A street-food stall raises the price of a noodle box from 6.00 to 6.60. Daily sales fall from 300 to 255.

• % change in price = (6.60 − 6.00) ÷ 6.00 × 100 = +10%
• % change in quantity = (255 − 300) ÷ 300 × 100 = −15%
• PED = −15 ÷ +10 = −1.5. Ignoring the sign the size is 1.5, so demand is price elastic.

Worked example 2. In Country A a rail fare rises from 2.50 to 3.00 and daily journeys fall from 5,000 to 4,600.

• % change in price = +20%; % change in quantity = −8%
• PED = −8 ÷ +20 = −0.4. Demand is price inelastic.

Using PED backwards. If PED is −0.4 and the fare rises by 12%, quantity falls by 0.4 × 12 = 4.8%. From 5,000 journeys that is 5,000 × 0.952 = 4,760.

Interpreting values (e) and drawing them (d)

Size of PED (ignoring sign)	Name	Meaning
0	Perfectly price inelastic	Quantity does not change at all when price changes
Between 0 and 1	Price inelastic	The percentage change in quantity is smaller than that in price
Exactly 1	Unitary	The two percentage changes are equal
Greater than 1	Price elastic	The percentage change in quantity is larger than that in price
Infinity	Perfectly price elastic	Buyers will buy any amount at one price and none above it

Price                Price                Price
 |  |                 |\                   |
 |  |  D              | \   D              |--------  D
 |  |                 |  \                 |
 +-------- Quantity   +-------- Quantity   +-------- Quantity
 vertical:            steep curve:         horizontal:
 perfectly inelastic  inelastic (compare)  perfectly elastic

Read the sketches like this. A vertical demand curve is perfectly inelastic. A horizontal demand curve is perfectly elastic. When two curves are drawn on the same axes through the same point, the steeper one shows more inelastic demand and the flatter one more elastic demand. PED changes along one straight demand curve, so use “steeper” and “flatter” only to compare curves.

Factors influencing PED (f)

• Substitutes. More and closer substitutes make demand more elastic. If the price rises, buyers can switch, so quantity falls by a large percentage. A good with no close substitute is more inelastic.
• Degree of necessity. Necessities such as basic medicines are bought even when the price rises, so demand is inelastic. Luxuries can be given up, so demand is more elastic.
• Percentage of income spent. If the good takes a tiny share of income, buyers barely react to a price rise and demand is inelastic. If it takes a large share, buyers cut back sharply and demand is more elastic.
• Time. Given months rather than days, buyers can switch brands or alter routines, so demand becomes more elastic. Immediately after a price rise, demand is usually less elastic.

Total revenue test (g)

Total revenue = price × quantity. Its movement after a price change tells you which side of 1 the PED lies on.

Worked example 3. A hall sells tickets to a series of shows.

Price	Quantity	Total revenue
50	400	20,000
40	520	20,800
30	546	16,380

From 50 to 40: price −20%, quantity +30%, PED = −1.5 (elastic), revenue rises by 800. From 40 to 30: price −25%, quantity +5%, PED = −0.2 (inelastic), revenue falls by 4,420.

Price change	Elastic demand	Inelastic demand
Rise	Revenue falls	Revenue rises
Fall	Revenue rises	Revenue falls

With unitary demand, revenue stays about the same for small changes: a 1% rise from 100 to 101 with a 1% fall in quantity from 1,000 to 990 moves revenue from 100,000 to 99,990.

Price elasticity of supply (PES)

Definition (h). PES shows how strongly producers change the amount they supply when the price of the good changes.

Formula (i). PES = % change in quantity supplied ÷ % change in price. Supply curves slope upwards, so PES is positive.

Calculation (j).

Worked example 4. Maize growers in Country A see the price rise from 200 to 240 a tonne. In the same season output rises from 1,400 to 1,484 tonnes.

• Price +20%; quantity supplied +6%
• PES = 6 ÷ 20 = 0.3, so supply is inelastic.

Next year growers can plant more. Output rises from 1,400 to 1,820 tonnes, or +30%. PES = 30 ÷ 20 = 1.5, so supply is elastic. The same market has a different PES because of time.

Worked example 5. A furniture workshop sees the price of a table rise from 120 to 126, and weekly output rises from 80 to 92. Price +5%; quantity +15%; PES = 15 ÷ 5 = 3.0 (elastic).

Interpreting values (l) and drawing them (k)

The same five names apply. PES of 0 is perfectly inelastic (a vertical supply curve, as with a fixed stock of tickets for one event). Between 0 and 1 is inelastic, exactly 1 is unitary, above 1 is elastic and infinity is perfectly elastic (a horizontal curve). A straight supply curve that would pass through the origin has a PES of 1 at every point: for Qs = 10P, a rise in price from 10 to 12 (+20%) lifts quantity from 100 to 120 (+20%). A straight supply curve that cuts the price axis is elastic. One that cuts the quantity axis is inelastic. When comparing two curves, the steeper is more inelastic.

Factors influencing PES (m)

• Factors of production. If land, labour and capital are easy to find and to move into the industry, output can rise quickly and supply is elastic. If they are scarce, specialised or slow to train, supply is inelastic.
• Availability of stocks. A firm holding unsold stock can release it as price rises, so supply is elastic. With no stock, extra output has to be made first.
• Spare capacity. A firm with unused machines and staff can expand output quickly. A firm already working flat out cannot.
• Time. In the short run some inputs are fixed, so supply is inelastic. In the long run firms build new capacity and new firms enter, so supply is more elastic.

Manufactured and primary products (n)

Manufactured goods, such as furniture, tend to have more elastic supply. Factories can hold stock, run extra shifts and use spare capacity. Primary products, such as farm crops and minerals, tend to have less elastic supply, at least in the short run. Crops take a growing season, harvests depend on weather, and a mine cannot expand overnight. These are tendencies, not laws: a farm holding grain in store has more elastic supply.

Income elasticity of demand (YED)

Definition (o). YED shows how strongly the amount of a good demanded changes when consumers’ incomes change.

Formula (p). YED = % change in quantity demanded ÷ % change in income.

Calculation (q).

Worked example 6. In Country B household income rises from 2,000 to 2,100 a month (+5%). Restaurant meals bought in a district rise from 5,000 to 5,400 a week (+8%).

• YED = 8 ÷ 5 = +1.6

Staple foods in the same period rise by 2%, giving 2 ÷ 5 = +0.4. Bus travel falls by 3%, giving −3 ÷ 5 = −0.6.

Interpretation (r).

YED	Type	What happens as income rises
Greater than 1	Luxury good	Demand rises by a larger percentage than income
Between 0 and 1	Normal good (necessity)	Demand rises, but by less than income
Negative	Inferior good	Demand falls

Classify by the size of the value. Restaurant meals (+1.6) are a luxury, staples (+0.4) are normal and bus travel (−0.6) is inferior for that group of households. If income falls 4% and YED is +2.5, quantity demanded falls 2.5 × 4 = 10%.

Why elasticity matters (s)

Indirect taxes. Country A taxes a drink by 0.40 a bottle, and the price rises from 2.00 to 2.40 (+20%). Weekly sales start at 50,000.

• Inelastic demand, PED −0.3: quantity falls 6% to 47,000. Tax revenue = 47,000 × 0.40 = 18,800.
• Elastic demand, PED −1.5: quantity falls 30% to 35,000. Tax revenue = 35,000 × 0.40 = 14,000.

The producers’ retained revenue, after passing on the tax, falls from 100,000 to 94,000 (−6%) in the first case and to 70,000 (−30%) in the second. So a government raises more revenue from a tax on a good with inelastic demand, and firms in that market lose less. A tax meant to cut consumption works better when demand is elastic. A tax on a necessity with inelastic demand can hit low-income households hard.

Subsidies. Country A subsidises rice by 0.40 a kilogram. The price paid falls from 5.00 to 4.60 (−8%), and sales start at 10,000 kg.

• PED −1.25: quantity rises 10% to 11,000. Subsidy cost = 11,000 × 0.40 = 4,400.
• PED −0.5: quantity rises 4% to 10,400. Subsidy cost = 4,160.

A subsidy raises consumption more when demand is elastic. Producers get 4.60 from buyers plus 0.40 from government, so each unit still earns 5.00. Supply elasticity also matters: with inelastic supply, output cannot respond quickly, so a subsidy may mainly raise prices or profits in the short run.

Changes in income. Businesses use YED to plan. A firm selling a luxury good (YED +1.6) expects sales to rise by 1.6 × 3 = 4.8% if incomes rise 3%, but to be hit hard in a recession. A firm selling an inferior good may see sales rise in a recession. Governments use YED to forecast spending and tax receipts, and to judge which industries grow as the economy grows.

Common errors

• Using the wrong base. Divide by the old value, not the new one.
• Reporting PED as 1.5 and calling it “unitary”. Unitary means exactly 1.
• Saying a steep curve means “lots of change in quantity”. The reverse is true.
• Treating the sign as unimportant for YED. A negative YED means inferior.
• Writing “elastic” with no reason. Quote the percentages compared.

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.