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- 1. AS Economics Mr Ahern
- 2. Just a bit of a recap So what would make this shift to the left?
- 3. Recap cont….
- 4. Examples of factors that result in shifts?
- 5. So what is today about then?
- 7. Learning objectives To further develop knowledge of Supply and Demand laws / factors To introduce Elasticity Undertake basic calculations
- 8. Elasticity “Elasticity is a measure of the extent to which a quantity responds to a change in a variable.”
- 9. Price Elasticity of Demand “The responsiveness of Demand to a change in price.” Elastic Inelastic Percentage change in Demand will be Greater than change in price. Percentage change in price will be Greater than change in demand.
- 10. Price Elastic Goods • Very responsive to Price changes • Many Substitutes (undifferentiated) • Products widely available
- 11. 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
- 12. Calculating P.E.D. P.E.D. = Percentage change in Demand Percentage change in Price % Change = Difference x 100 = _____ % Original
- 13. 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
- 14. A Demand Curve of an Elastic Good Price Quantity Demanded 0 D 250 200 150 100 50 100 200 300 400 500 600
- 15. Total Revenue at £150 Price Quantity Demanded 0 D 250 200 150 100 50 600 x 150 100 200 300 400 500 600
- 16. Total Revenue at £200 Price Quantity Demanded 0 D 250 200 150 100 50 200 x 100 100 200 300 400 500 600
- 17. A Demand Curve of an Elastic Good Price Quantity Demanded 0 D 250 200 150 100 50 Revenue Gained Due To Price Increase Revenue Lost Due To Price Increase 100 200 300 400 500 600
- 18. A Demand Curve of an Inelastic Good Price Quantity Demanded 0 D 250 200 150 100 50 20 40 60 80 100 120
- 19. A Demand Curve of an Inelastic Good Price Quantity Demanded 0 D 250 200 150 100 50 50 x 60 20 40 60 80 100 120
- 20. A Demand Curve of an Inelastic Good Price Quantity Demanded 0 D 250 200 150 100 50 250 x 40 20 40 60 80 100 120
- 21. A Demand Curve of an Inelastic Good Price Revenue Lost Due To Price Increase Quantity Demanded 0 D 250 200 150 100 50 Revenue Gained Due To Price Increase 20 40 60 80 100 120
- 22. A Demand Curve of an Perfectly Inelastic Good Price Quantity Demanded 0 D 50 40 30 20 10 2 4 6 8 10
- 23. A Demand Curve of an Perfectly Inelastic Good Price Quantity Demanded 0 D 50 40 30 20 10 2 4 6 8 10
- 24. A Demand Curve of an Perfectly Inelastic Good Price Quantity Demanded 0 D 50 40 30 20 10 2 4 6 8 10
- 25. A Demand Curve of an Perfectly Inelastic Good Price Quantity Demanded 0 D 50 40 30 20 10 Revenue Gained Due To Price Increase 2 4 6 8 10
- 26. A Demand Curve of an Perfectly Elastic Good Price Quantity Demanded 0 D 1000 800 600 400 200 50 100 150 200 250
- 27. A Demand Curve of an Perfectly Elastic Good Price Quantity Demanded 0 D 1000 800 600 400 200 400 x 250 50 100 150 200 250
- 28. A Demand Curve of an Perfectly Elastic Good Price Quantity Demanded 0 D 1000 800 600 400 200 Revenue Lost Due To Price Increase 50 100 150 200 250
- 29. A Demand Curve for a Good with Unitary Price Elasticity Price Quantity Demanded 0 D y x z w
- 30. A Demand Curve for a Good with Unitary Price Elasticity Price Revenue Lost Due To Price Increase Quantity Demanded 0 D y x z w Revenue Gained Due To Price Increase
- 31. 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.
- 32. Products I bought at the weekend Shoes from Primark THINGS I BOUGHT OVER THE WEEKEND Fashion Suit Free Range Eggs Present for mum Special offer pizza Bicycle
- 33. Learning objectives To further develop knowledge of Supply and Demand laws / factors To introduce Elasticity Undertake basic calculations