Price elasticity of demand and supply
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교육자를 위해: Price elasticity of demand and supply(Economics, Markets)을(를) 위한 바로 쓸 수 있는 수업 슬라이드, 복습 노트 — 수업에 사용하거나, 학습자들이 실시간 게임으로 즐기는 인터랙티브 클래스 활동으로 진행하세요.
수업 노트
Price elasticity of demand (PED)
- PED compares percentage quantity-demanded change with percentage own-price change, holding other demand determinants fixed. It is usually signed negative on downward-sloping demand. Use magnitude for classification: above 1 elastic; below 1 inelastic; 1 unit elastic; 0 perfectly inelastic. A vertical demand curve has fixed quantity; a horizontal perfectly elastic curve is an ideal limiting model at a stated price.
- State the required method. Under original-value percentages, each change is (new − old)/old × 100. Midpoint methods use different bases and can give different finite estimates; follow the question. Elasticity is dimensionless and differs from slope: a straight-line curve can have different proportional responsiveness at different points.
Classify by PED magnitude
Factors affecting PED
- Substitutes, necessity, spending share, switching costs, habits and time affect responsiveness. More close accessible alternatives often increase elasticity; necessary uses with few alternatives can constrain it. These are contextual tendencies rather than permanent product labels.
- Longer time may permit changes in equipment or habits, but does not guarantee a particular coefficient. Market definition matters: one brand can face more close alternatives than a broad product category. Product colour can affect preferences, so dismiss it only under an explicit no-effect assumption.
Explain the response in context
Why it matters to firms
- For a small change on a demand segment that remains elastic, a price cut raises revenue; on an inelastic segment, a price rise raises revenue. These rules need the relevant local or interval conditions. For finite given changes, directly calculate TR = P × units sold at both endpoints. Higher revenue need not increase profit because costs and capacity matter.
- Bakery price factor 1.10 times quantity factor 0.95 gives 1.045, so revenue rises 4.5%. Jacket price factor 0.80 times quantity factor 1.50 gives 1.20, so revenue rises 20%. Use these products rather than simply adding signed percentages, which omits their interaction.
Fictional finite revenue checks
Calculation
- With price +10% and quantity −20%, signed PED = −20/+10 = −2, magnitude 2, elastic. With price +10% and quantity −25%, PED −2.5 and revenue factor 1.10 × 0.75 = 0.825: revenue falls 17.5%.
- Equal opposite finite original-base changes do not exactly cancel: £10/100 units gives £1,000 while £11/90 gives £990, despite an original-base PED magnitude 1. Constant unit elasticity instead follows a reciprocal demand such as P = 400/Q, where revenue remains £400. Distinguish a local elasticity rule from exact finite arithmetic.
Fictional constant-revenue demand
Price elasticity of supply (PES)
- PES = percentage change in quantity supplied divided by percentage change in own price, with other supply determinants held constant. Fictional price £10 to £12 gives +20%; quantity 100 to 130 gives +30%; PES = 1.5. Conventional supply gives positive PES, classified above 1 elastic and below 1 inelastic.
- Usable spare capacity, saleable stocks, flexible inputs and longer lead times can increase supply responsiveness. Growing times, perishability and bottlenecks constrain it. A change in own price is movement along supply; a cost or technology change can shift the relationship.
Fictional PES calculation
Extension: income elasticity
- YED measures percentage quantity-demanded change divided by percentage income change, with other determinants unchanged. A positive coefficient indicates normal and a negative coefficient inferior over the stated range. Neither is a quality label.
- YED is included as extension material; AQA 8136’s core elasticity content is PED and PES. Keep the changed determinant clear and use the exam board’s requirements rather than assuming all courses have identical coverage.
Extension: distinguish the cause
Slope and proportional responsiveness
- Fictional P = 10 − 0.1Q has constant slope −0.1. At Q20/P8 and Q80/P2, equal absolute changes represent different percentages of the starting prices and quantities. The magnitude of point elasticity therefore varies along the line.
- Comparing visual steepness is meaningful only with suitable common axes and points; changing units can alter slope without altering elasticity. The reciprocal P = 400/Q is a contrasting constant unit-elastic curve with unchanged total revenue throughout its positive range.
Same slope, different percentage bases
Tax receipts and incidence
- For a specific per-unit tax, revenue is the tax per unit multiplied by taxable quantity. A less responsive demand may preserve quantity, but the tax rate, supply response, compliance and avoidance determine receipts. Policy may also pursue health or environmental objectives rather than revenue alone.
- In a standard competitive market, the relatively less elastic side bears more of the economic tax burden. This differs from who legally remits the tax. Consider consumers, producers and distributional effects without assuming inelastic means no quantity change or that demand alone determines incidence.
Separate tax questions
슬라이드
연습 문제
무료 미리 보기 — 35개 중 8개 문제. 가입하면 전부 볼 수 있어요.
1.What does PED measure?
Easy- Aresponsiveness of quantity demanded to a price change
- Bthe price
- Cincome
- Dprofit
2.What does elastic demand mean?
Easy- Aquantity changes by a smaller percentage
- Bno change
- Calways one
- Dquantity demanded responds by a larger percentage than price, in magnitude
3.What does inelastic demand mean?
Easy- Ano change ever
- Balways one
- Cquantity changes by a smaller percentage than price
- Dquantity changes by a larger percentage
4.What is unit elastic demand?
Easy- Ainfinite
- BPED magnitude equals 1
- CPED equals 0
- DPED equals 2
5.What is perfectly inelastic demand?
Easy- Aquantity does not change as price changes
- Bquantity changes a lot
- Cdemand is zero
- Ddemand is infinite
6.Price falls 5% and quantity demanded rises 15%, other determinants unchanged. What is the magnitude of PED?
Easy- A0.33
- B20
- C10
- D3
7.Price rises 20% and quantity demanded falls 10%, other determinants unchanged. What is the magnitude of PED?
Easy- A30
- B10
- C0.5
- D2
8.Which factor makes demand more elastic?
Easy- Abeing cheap
- Bmany substitutes
- Cbeing a necessity
- Dbeing addictive
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