Stamps to go up by 3p - Price elasticity of demand

The Royal Mail has decided to increase the price of first class stamps by 3p due to a huge hole in their finances. They are hoping the proposal will rake in an extra £100 million pounds a year. Whether this tactic is successful depends on the price elasticity of demand for the stamp. Consumer Focus believe the new prices would drive away customers meaning demand would be price elastic where as the Royal Mail obviously believe demand is price inelastic as they expect to increase revenue with the price change. Click read more for some questions on PED that would suit both GCSE and A level students.

GCSE

Explain what is meant by price elasticity of demand (2)

Discuss whether demand for a first class stamp is likely to be price elastic or inelastic. (4)

A Level or more able GCSE students

Use a supply and demand diagram to help explain how total revenue will be affected by the price change if demand for stamps in price inelastic. (6)