Price elasticity of demand and determinants
- Explain the concept of price elasticity of demand, understanding that it involves responsiveness of quantity demanded to a change in price, along a given demand curve.
- Calculate PED using the following equation PED= %ΔQd/%ΔP
- State that the PED value is treated as if it were positive although its mathematical value is usually negative.
- Explain, using diagrams and PED values, the concepts of price elastic demand, price inelastic demand, unit elastic demand, perfectly elastic demand and perfectly inelastic demand.
- Explain the determinants of PED, including the number and closeness of substitutes, the degree of necessity, time and the proportion of income spent on the good.
- Calculate PED between two designated points on a demand curve using the PED equation above.
- Explain why PED varies along a straight line demand curve and is not represented by the slope of the demand curve.
Look at the following list of products and try to place them in the correct order... most inelastic (least responsive to a price change) on top down to most elastic (most responsive to a price change)...
For my short explanation of why elasticity varies along the length of a linear demand curve, you can click this link https://docs.google.com/a/aisb.hu/file/d/0B2DnmWBd6LOCbzJzXzNSY2F2UWM/edit . Also I have posted PAJ Holden's video explanation of all the elasticity topics on this page.
You will be given a copy of the following handout which covers the objectives above (as well as some objectives still to come)... but if you lose it then download and print out...