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

This guide covers sections 3.1.3.4 (Intermarket relationships), 3.1.3.5 (PED and cross elasticity) and 3.1.3.6 (PES) of the OxfordAQA International GCSE Economics (9214) specification, for exams from May/June 2025 onwards. Every country, firm and number below is invented for illustration.

Related pages: revision notes, practice questions, the wider How markets work guide, the course hub, the printable checklist and the free diagnostics.

Specification coverage

Reference	Outcome
3.1.3.4	Meaning of complements and substitutes; impact of changes in demand, supply and price in one market on related markets
3.1.3.5	Price elasticity of demand (PED): why a price change does not always produce an equal change in demand, factors, elastic versus inelastic, calculation, implications for producers and consumers; cross elasticity of demand (XED), calculation
3.1.3.6	Price elasticity of supply (PES): why a price change does not always produce an equal change in supply, factors, elastic versus inelastic, calculation, implications

3.1.3.4 Intermarket relationships

Substitutes are goods that meet the same need, so a buyer can switch from one to the other. Complements are goods used together, so demand for one rises and falls with demand for the other.

Event in market A	Related good B is a substitute	Related good B is a complement
A becomes dearer	B’s demand curve shifts right	B’s demand curve shifts left
A becomes cheaper	B’s demand curve shifts left	B’s demand curve shifts right

Notice the word “shift”. The price of A is not B’s own price, so B’s demand curve moves rather than B’s quantity sliding along a curve. Only after demand for B has shifted does B’s own price change, and then there is a movement along B’s supply curve.

Worked chain 1: a change in supply spreading across markets. In Country A, a refinery fault cuts the supply of petrol.

1. Petrol supply shifts left, so its equilibrium price rises and the quantity traded falls.
2. Bus travel is a substitute for driving. Some commuters switch, so demand for bus tickets shifts right. The price of tickets and the number sold both rise.
3. New petrol cars are complements, since they need the fuel. Buyers delay purchases, so demand for new petrol cars shifts left. Their price and quantity both fall.

Worked chain 2: a change in price spreading across markets. An e-scooter maker cuts the price of its scooters. More scooters are bought (a movement down the scooter demand curve). Scooter helmets are complements, so their demand shifts right and their price and quantity rise. Bus tickets are a substitute, so their demand may shift left as some riders switch to the cheaper scooter.

Worked chain 3: input and product markets. Flour is an input for bread. A rise in the price of flour raises bakers’ costs, so the supply of bread shifts left, bread price rises and bread sales fall. A rise in demand for bread works the other way: bakers buy more flour, so demand for flour rises.

Evaluation. The size of the knock-on effect depends on how close the relationship is. A very close substitute (two brands of the same fruit juice) gains much more than a distant one (juice for a snack). The effect also depends on time, because buyers need time to switch, and on whether other things change at once.

3.1.3.5 Demand responsiveness (PED and XED)

A rise in price lowers quantity demanded, but not always by the same proportion. PED measures how responsive quantity demanded is.

PED = (% change in Qd) ÷ (% change in price), where Qd means quantity demanded

Each percentage change is (later figure − starting figure) ÷ starting figure × 100. Because price and quantity move in opposite directions, PED is normally negative. Say how you are treating the sign. If you compare sizes only, ignore it.

Size of PED (ignoring sign)	Description	Meaning
Greater than 1	Price elastic	Demand reacts proportionately more than price moved
Less than 1	Price inelastic	Demand reacts proportionately less than price moved
Exactly 1	Unit elastic	The percentages match

Worked example 1 (price rise, elastic). A car wash raises the price of a wash from 7.50 to 9.00. Weekly washes fall from 500 to 380.

% change in price    = (9.00 − 7.50) ÷ 7.50 × 100 = +20%
% change in quantity = (380 − 500) ÷ 500 × 100   = −24%
PED = −24 ÷ 20 = −1.2

Size 1.2 is greater than 1, so demand is price elastic.

Worked example 2 (price rise, inelastic). Town B’s bus fare rises from 4.00 to 4.40 and weekly journeys fall from 2,000 to 1,900. Price +10%, quantity −5%, so PED = −5 ÷ 10 = −0.5. Demand is price inelastic.

Worked example 3 (price fall). A firm cuts a price from 60 to 54 and sales rise from 200 to 260. Price −10%, quantity +30%, PED = 30 ÷ −10 = −3. Demand is very price elastic.

Worked example 4 (using PED to predict). PED is −0.8, price rises 15% and sales are 800. Quantity changes by −0.8 × 15 = −12%, so new sales are 800 × 0.88 = 704.

Worked example 5 (finding the price change). PED is −1.5. A firm wants sales up by 12%. Price change = 12 ÷ −1.5 = −8%, an 8% cut.

Factors affecting PED

Factor	Demand tends to be more elastic when…	…and more inelastic when…
Substitutes	Many close substitutes exist	Few or none exist
Necessity or luxury	The good is a luxury or can be postponed	The good is a necessity
Share of income	It takes a large share of income	It takes a tiny share
Time	Buyers have time to find alternatives (long run)	Buyers must decide quickly (short run)
Habit or addiction	Buying is occasional	Buyers are habitual or dependent
Width of definition	The market is narrow (one brand)	The market is broad (all fuel)

Implications for producers and consumers

Total revenue = price × quantity. The effect of a price change on revenue depends on PED.

Demand is…	Price rises	Price falls
Elastic	Total revenue falls	Total revenue rises
Inelastic	Total revenue rises	Total revenue falls

Check with the examples. Example 1: revenue falls from 7.50 × 500 = 3,750 to 9.00 × 380 = 3,420 (elastic, price up). Example 2: revenue rises from 4.00 × 2,000 = 8,000 to 4.40 × 1,900 = 8,360 (inelastic, price up). Example 3: revenue rises from 60 × 200 = 12,000 to 54 × 260 = 14,040 (elastic, price down).

• Producers. Cut prices when demand is elastic, to gain revenue. Raise prices when it is inelastic. Firms try to make demand less elastic through branding and loyalty. Revenue is not profit, so costs matter too.
• Consumers. If demand is inelastic, buyers cannot cut back much, so a price rise makes their total bill larger. Where demand is elastic, buyers can protect themselves by switching, so firms have less power to raise price.

Evaluation. PED is not fixed. It differs at different prices and changes over time. Calculations assume only price changed, but real data often mix in changes in income or tastes.

Cross elasticity of demand (XED)

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

A positive answer means substitutes. A negative answer means complements. A value near zero means the goods are unrelated. A larger size means a closer relationship.

Worked example 6 (substitutes). The price of sparkling water rises 10% and demand for fruit juice rises 4%. XED = 4 ÷ 10 = +0.4, so they are substitutes.

Worked example 7 (complements). The price of memory cards rises 8% and demand for cameras falls 6%. XED = −6 ÷ 8 = −0.75, so they are complements.

3.1.3.6 Supply responsiveness (PES)

A rise in price encourages firms to supply more, but not always by the same proportion.

PES = (% change in Qs) ÷ (% change in price), where Qs means quantity supplied

PES is normally positive. Greater than 1 means price elastic supply and less than 1 means price inelastic supply.

Worked example 8 (inelastic). The price of a box of strawberries rises from 6.00 to 7.20 (+20%) and the grower supplies 840 boxes instead of 800 (+5%). PES = 5 ÷ 20 = 0.25. Supply is price inelastic, because fruit takes a season to grow.

Worked example 9 (elastic). A clothing firm sees price rise from 8 to 9 (+12.5%) and output rise from 2,000 to 2,500 (+25%). PES = 25 ÷ 12.5 = 2. Supply is price elastic.

Factors affecting PES

• Spare capacity. Firms with idle machines can raise output fast.
• Stocks of finished goods. Stored goods can be released at once.
• Ease of switching production. Mobile workers and flexible equipment make supply more elastic.
• Time. Supply is more elastic in the long run, once firms can expand.
• Production period and perishability. Crops take a season to grow, so supply is inelastic at first.
• Availability of inputs. A shortage of skilled labour or materials limits response.

Implications for producers and consumers

If demand rises, elastic supply allows output to grow with a small price rise. Inelastic supply means a given increase in output needs a large price rise. For a 5% rise in output, a good with PES 0.5 needs a price rise of 5 ÷ 0.5 = 10%, while PES 2 needs only 2.5%. Producers with elastic supply can grab sales quickly. Consumers face sharp price jumps when supply is inelastic, and the effect can last a long time.

Common errors

• Turning the fraction upside down, so price ends up as the numerator.
• Taking each percentage from the later figure. Start from the earlier figure.
• Saying inelastic means “no response”. It means a smaller proportionate response.
• Mixing up XED sign meanings.
• Treating a change in a related good’s price as a movement along the demand curve of the good affected.
• Ignoring the time period in an evaluation.

Official syllabus

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