OxfordAQA International GCSE Economics: Related markets and price elasticity of demand and supply (9214) – Revision Notes

Quick recall for sections 3.1.3.4 to 3.1.3.6 of the OxfordAQA International GCSE Economics (9214) specification, for exams from May/June 2025 onwards. For full explanations read the study guide, then test yourself with the practice questions. Other links: How markets work guide, course hub, checklist and free diagnostics. All figures are invented.

3.1.3.4 Intermarket relationships

Term	Meaning	If price of A rises, demand for B
Substitutes	Goods meeting the same need; buyers switch	Rises (shift right)
Complements	Goods used together	Falls (shift left)

Remember the chain: change in market A, then shift in the demand or supply curve in market B, then new equilibrium price and quantity in B.

Method: tracing a knock-on effect

1. State the first event: demand, supply or price in market A.
2. Give the new price and quantity in A.
3. Say whether B is a substitute, complement or input.
4. Name the curve in B that shifts and the direction.
5. State B’s new price and quantity.
6. Add a limit: closeness of the link, time, other changes.

Quick cases

Event	Related market	Effect
Poor harvest cuts supply of rice	Wheat noodles (substitute)	Demand rises, price rises
Price of petrol cars falls	Petrol (complement)	Demand rises
Price of leather rises	Leather shoes	Supply shifts left (input cost)
Demand for bread rises	Flour	Demand for flour rises

3.1.3.5 Price elasticity of demand (PED)

PED = (% change in Qd) ÷ (% change in price)

% change = (later − starting figure) ÷ starting figure × 100

Size (ignore sign)	Label	Price rise gives
Above 1	Elastic	Total revenue falls
Below 1	Inelastic	Total revenue rises
Equal to 1	Unit elastic	Revenue unchanged

PED is normally negative. State your sign treatment.

Method: calculating PED

1. Work out % change in price from the original price.
2. Work out % change in quantity from the original quantity.
3. Divide quantity percentage by price percentage.
4. Compare the size with 1 and name it elastic or inelastic.

Worked reminder 1. A stall raises a price from 20 to 24 and weekly sales fall from 600 to 540.

Price: (24 − 20) ÷ 20 × 100 = +20%
Quantity: (540 − 600) ÷ 600 × 100 = −10%
PED = −10 ÷ 20 = −0.5 (inelastic)
Revenue: 20 × 600 = 12,000 rises to 24 × 540 = 12,960

Worked reminder 2. A firm cuts price from 12 to 9.60 and sales rise from 500 to 650.

Price: −20%.  Quantity: +30%.  PED = 30 ÷ −20 = −1.5 (elastic)
Revenue: 12 × 500 = 6,000 rises to 9.60 × 650 = 6,240

Factors (a memory chain: S N P T H W)

• Substitutes: more of them means more elastic.
• Necessity: necessities are less elastic, luxuries more.
• Proportion of income: a big share means more elastic.
• Time: longer time means more elastic.
• Habit or addiction: makes demand less elastic.
• Width of the market definition: broader means less elastic.

Implications

For	Elastic demand	Inelastic demand
Producer	Cut price to raise revenue; rivals can take sales	Can raise price and revenue; sales fall little
Consumer	Can switch if price rises	Pays more; hard to cut back

Revenue is not profit. A price cut that raises revenue can still lower profit if extra output is costly.

Working backwards from an elasticity

Rearrange the formula when the elasticity is given.

Find	Rearranged	Example
% change in quantity	elasticity × % change in price	PED −0.8, price +15%: quantity −12%, so 800 becomes 704
% change in price	% change in quantity ÷ elasticity	PED −1.5, wanted quantity +12%: price −8%
% change in price needed	% change in output ÷ PES	PES 0.5, output +5%: price +10%. PES 2: price +2.5%

Always convert the percentage back into a level if the question asks for a new quantity or price. Multiply the original by one plus the percentage as a decimal.

Intermarket chain: a price cut

An e-scooter maker cuts its price.

1. Scooter demand: a movement down the curve, so more scooters are bought.
2. Scooter helmets: complements, so demand shifts right, and price and quantity rise.
3. Bus tickets: a substitute, so demand may shift left as riders switch.

Evaluation prompts

Use these to turn a description into a judgement.

• Time: buyers and firms respond more fully in the long run.
• Closeness: a very close substitute or complement gives a bigger knock-on effect.
• Other changes: income, tastes or costs may move at the same time.
• Revenue versus profit: higher revenue only helps if extra costs are smaller.
• Size of the elasticity: a value near 1 means the effect on revenue is small, so costs and rivals matter more.
• Who gains: say whether producers, consumers or both, and in which period.

Cross elasticity of demand (XED)

XED = (% change in demand for A) ÷ (% change in price of B)

Result	Meaning
Positive	Substitutes
Negative	Complements
Close to zero	Unrelated

Bigger size means a closer link.

Worked reminder 3. The price of tea rises 20% and demand for coffee rises 15%. XED = 15 ÷ 20 = +0.75, so the goods are substitutes.

3.1.3.6 Price elasticity of supply (PES)

PES = (% change in Qs) ÷ (% change in price)

Above 1 means elastic. Below 1 means inelastic. PES is normally positive.

Worked reminder 4. Price rises from 5 to 6 and output rises from 800 to 1,000.

Price: +20%.  Quantity supplied: +25%.  PES = 25 ÷ 20 = 1.25 (elastic)

Worked reminder 5 (time). After a price rise of 10%, a pizza kitchen can add only 2% to output this week because its ovens are full, so PES is 0.2. Over a year it installs a second oven and output rises 15% for the same price rise, so PES is 1.5. One product, two answers: output reacts weakly this week and strongly over a year, so always state the time period.

Revenue check for PED. Compute price × quantity before and after. If a price rise lowers revenue, demand was elastic. If a price rise raises revenue, demand was inelastic. If a price cut raises revenue, demand was elastic. This gives a quick cross-check on your PED answer.

Factors

• Spare capacity.
• Stocks of finished goods.
• Ease of switching production or hiring.
• Time (long run is more elastic).
• Length of production period and perishability.
• Availability of inputs.

Implications

• Elastic supply: output follows demand quickly, so price rises are small and short.
• Inelastic supply: a demand surge causes a large price rise.
• Producers with elastic supply win extra sales fast. Consumers gain from steadier prices.

Must-know distinctions

Idea	Do not confuse with
Inelastic (smaller proportionate response)	Zero response
Substitutes (positive XED)	Complements (negative XED)
Shift of B’s demand (A’s price changed)	Movement along B’s demand (B’s own price changed)
PED (buyers)	PES (sellers)

Quick self-test

1. A price rise of 6% causes quantity demanded to fall 9%. Calculate PED.
2. PED is −0.8. Price rises 5%. What is the percentage change in quantity demanded?
3. A 4% price rise for good B lowers demand for good A by 12%. Calculate XED and name the relationship.
4. PES is 0.4. Price rises 10%. What is the percentage change in quantity supplied?
5. A product is 80 and sells 1,000 units. PED is −2.5. Price rises to 92. Find the new quantity and the revenue before and after.
6. Price rises from 10 to 12.50 and quantity supplied from 300 to 330. Calculate PES.
7. Give two reasons why demand for household tap water is inelastic.
8. Explain why cutting price may not raise profit even if demand is elastic.
9. State one reason why PES is higher in the long run.
10. A tax on coffee lowers its quantity. Say what happens to demand for sugar, a complement.

Answers

1. −9 ÷ 6 = −1.5 (elastic).
2. −0.8 × 5 = −4%.
3. −12 ÷ 4 = −3, so complements.
4. 0.4 × 10 = +4%.
5. Price +15%. Quantity change = −2.5 × 15 = −37.5%. New quantity = 1,000 × 0.625 = 625. Revenue 80 × 1,000 = 80,000 falls to 92 × 625 = 57,500.
6. Price +25%, quantity +10%. PES = 10 ÷ 25 = 0.4 (inelastic).
7. It is a necessity, and there is no close substitute for washing and cooking.
8. Extra units cost money to make. If the extra cost exceeds the extra revenue, profit falls.
9. Firms can build capacity, hire and train staff, and bring in new inputs.
10. Coffee sales fall, so demand for sugar shifts left and its price and quantity fall.

Where marks are usually lost

• Taking percentages of the later figure rather than the starting figure.
• Writing the fraction upside down.
• Stating a number with no word “elastic” or “inelastic”.
• Missing the sign of XED, which carries the meaning.
• Saying “demand falls” when it is a movement along the curve.
• Describing a knock-on effect without naming the curve that shifts.
• Equating revenue with profit.
• Giving a factor with no explanation of why it changes responsiveness.

Official syllabus

Source: OxfordAQA International GCSE Economics (9214), specification for exams from May/June 2025, published by OxfordAQA.