AS EconomicsMr Ahern

Just a bit of a recap

So what would make this shift

to the left?

Recap cont….

Examples of factors that result in shifts?

So what is today about then?

Learning objectives

To further develop knowledge of Supply and Demand laws / factors

To introduce Elasticity

Undertake basic calculations

Elasticity

“Elasticity is a measure of the extent to which a

quantity responds to a change in a variable.”

Price Elasticity of Demand

Elastic Inelastic

Percentage change in

Demand will be

Greater than change in price.

Percentage change inprice will be

Greater than change in demand.

“The responsiveness of Demand to a change in

price.”

Price Elastic Goods

• Very responsive to Price changes

• Many Substitutes (undifferentiated)

• Products widely available

Price Inelastic Goods

• Less responsive to Price changes

• *** Inelastic goods are still affected by price rises! ***

• Inelastic goods tend to be…– Highly branded (highly fashionable) – Innovative – In short supply– Few Substitutes – Habit Forming

Calculating P.E.D.

P.E.D. = Percentage change in Demand

Percentage change in Price

% Change = Difference x 100 = _____ % Original

Calculating P.E.D.

Value Description Explanation• 0 Perfectly Inelastic Price has no effect on

demand at all

• 0<1 Inelastic Price has a small effect on demand

• 1 Unitary Changes are the same

• 1<Infinity Elastic Demand is very sensitive to price

• Infinity Perfectly Any Increase in price, kill Elastic demand

A Demand Curve of an Elastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

500400300200100 600

Total Revenue at £150Price

Quantity Demanded

0

D

250

200

150

100

50

500400300200100 600

600 x 150

Total Revenue at £200Price

Quantity Demanded

0

D

250

200

150

100

50

500400300200100 600

200 x 100

A Demand Curve of an Elastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

500400300200100 600

Revenue Lost Due To Price Increase

Revenue Gained Due To Price

Increase

A Demand Curve of an Inelastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

10080604020 120

A Demand Curve of an Inelastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

10080604020 120

50 x 60

A Demand Curve of an Inelastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

10080604020 120

250 x 40

A Demand Curve of an Inelastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

10080604020 120

Revenue Gained Due To Price

Increase

Revenue Lost Due To Price Increase

A Demand Curve of an Perfectly Inelastic Good

Price

Quantity Demanded

0

D

50

40

30

20

10

108642

A Demand Curve of an Perfectly Inelastic Good

Price

Quantity Demanded

0

D

50

40

30

20

10

108642

A Demand Curve of an Perfectly Inelastic Good

Price

Quantity Demanded

0

D

50

40

30

20

10

108642

A Demand Curve of an Perfectly Inelastic Good

Price

Quantity Demanded

0

D

50

40

30

20

10

108642

Revenue Gained Due To Price

Increase

A Demand Curve of an Perfectly Elastic Good

Price

Quantity Demanded

0

D

1000

800

600

400

200

25020015010050

A Demand Curve of an Perfectly Elastic Good

Price

Quantity Demanded

0

D

1000

800

600

400

200

25020015010050

400 x 250

A Demand Curve of an Perfectly Elastic Good

Price

Quantity Demanded

0

D

1000

800

600

400

200

25020015010050

Revenue Lost Due To Price Increase

A Demand Curve for a Good with Unitary Price Elasticity

Price

Quantity Demanded

0

D

y

x

z w

A Demand Curve for a Good with Unitary Price Elasticity

Price

Quantity Demanded

0

D

y

x

z w

Revenue Lost Due To Price Increase

Revenue

Gained Due To Price

Increase

Summing Up

Elastic Goods • Percentage change in Demand is greater than

percentage change in price.• Highly responsive to price change • Increases in price will lead to fall in total revenue.

Inelastic Goods • Percentage change in Demand is Less than

percentage change in price.• Slightly responsive to price change (BUT STILL

RESPONSIVE!) • Increases in price will lead to a raise in total

revenue.

Products I bought at the weekend

Shoes from Primark

THINGS I BOUGHT OVER THE WEEKEND

Fashion Suit

Free Range Eggs

Special offer pizza

Present for mum

Bicycle

Learning objectives

To further develop knowledge of Supply and Demand laws / factors

To introduce Elasticity

Undertake basic calculations

Complete worksheet