2. Demand is Elastic if the proportional change in
Quantity is greater than the proportional change
in price.
Example: Price increases by 5% & the quantity
demanded falls by 6%...
Demand is Unitary when the proportional
change in quantity is equal to the proportional
change in price.
Example: Price falls by 5% & the demand rises
by 5%...
3. Demand is inelastic
if the proportional
change in quantity is
less than the
proportional change
in price.
Example: Price falls by
5% & the demand
increases by 2%...
4. PED = % change in quantity demanded
Price % change in price
P
Gain in total
revenue (5%0
P1
Loss in total
revenue (6%)
Q Q1 Quantity
Elastic demand P.E.D. = (>1)
5. Price
P
Inelastic demand P.E.D. = (<1)
Loss in
total
revenue
P1
Gain in
total
revenue
Quantity
Q Q1
6. Features of Price Elasticity of Demand
Feature Elastic Goods Inelastic Goods
PED value Greater than 1 Less than 1
Price rise means Larger fall in demand Smaller fall in
demand
Slope of demand Flat Steep
curve
Number of Many Few
substitutes
Type of good Luxury Necessity
Price of good Expensive Cheap
Example Jaguar cars Petrol
8. Priceelasticity of supply (PES) measures
the responsiveness of supply to a given
change in price.
PES = % change in quantity supplied
% change in price
9. Supply is said to be
elastic when the
quantity changes by a
greater proportion than
the price change.
Inelasticsupply is
when quantity changes
by a smaller proportion
than the price change.
10. Features of Elasticity of Supply
Feature Elastic Goods Inelastic Goods
PES Value Greater than 1 Less than 1
A prise rise means A larger rise in supply A smaller rise in
supply
Slope of supply curve Flat Steep
The good is produced Rapidly Slowly
The time period is Months Days
The firm has Large stocks Limited stocks
Example Screws Beef
11. Formation of a Market Price
Inthe market place the forces of Supply &
Demand interact to create a market price.
Ineconomics this is known as the
equilibrium price – the price at which the
quantity demanded equals the quantity
supplied…
13. The equilibrium price is 50p. At this price the quantity that
will be bought & sold is 500
Price
D S
60
50
40
30
20
10
0
Quantity 100 200 300 400 500 600 700 800
Editor's Notes
Page 393 onwards in the ‘Book’. Following on from Supply and demand If the price rises the demand falls and vice versus. This is a way of measuring the difference. Demand is Unitary – This means that if the price and quantity are the same then they are equal Cod – Supply is reduced, prices increase. However some people can afford the increase but are environmentalists then the demand is not unitary. They will skew the equation. This is “in-elastic demand”
See previous for details and page 395 of book Price falls by 5% - demand increases by (possibly) only 2%. Perhaps maybes sometimes ish………… This is inelasticity If people deem your goods to high they may look elsewhere. Porters five forces come into play here
PED = Price Elasticity of Demand P1 to P puts price up by 5%
Doh!. Come back Keely, all is forgiven
Equilibrium is achieved at 50p. Mel says “If it’s in the book it’s right” Wow, I just saw a Pig flying over the building!!!!
Mel’s attempt at a graph (He should have kept to stealing pictures from the book).
