Applications of price elasticity of demand
- Examine the role of PED for firms in making decisions regarding price changes and their effect on total revenue.
- Explain why the PED for many primary commodities is relatively low and the PED for manufactured products is relatively high.
- Examine the significance of PED for government in relation to indirect taxes.
Today we will continue on from yesterday and also consider the objectives above.
- Examine the role of PED for firms in making decisions regarding price changes and their effect on total revenue
- Explain why it is important for firms to be aware of PED for the products they produce when they are considering changing prices
- Examine the significance of PED for government in relation to indirect taxes (we will look at this in far more detail in the next topic)
- Give two reasons why the government would place a tax on a good, such as cigarettes
- Would government collect more in tax revenue if demand was price elastic or price inelastic? Why?
- Would the allocation of resources to an industry, including labour, be more affected by an indirect tax if demand was price elastic or inelastic? Why?
Here is a case study with some questions to answer...
Homework (Academic Practice): You need to watch the video at this EdPuzzle link (the class code is eX6QK5) and answer the questions I have embedded into the video. I will be able to see exactly who has or who has not watched the video!! Plus you need to hand some graphs in to me at the beginning of the next lesson based on the final question I have asked you to consider.
Also, below is a great 4 1/2 minute summary of PED... an excellent revision tool!