ILO:
a) Understanding of price, income and cross elasticities of demand
b) Use formulae to calculate price, income and cross elasticities of demand
c) Interpret numerical values of:
o price elasticity of demand: unitary elastic, perfectly and relatively elastic, and perfectly and relatively inelastic
o income elasticity of demand: inferior, normal and luxury goods; relatively elastic and relatively inelastic
o cross elasticity of demand: substitutes, complementary and unrelated goods
d) The factors influencing elasticities of demand
e) The significance of elasticities of demand to firms and government in terms of:
o the imposition of indirect taxes and subsidies
o changes in real income
o changes in the prices of substitute and complementary goods
f) The relationship between price elasticity of demand and total revenue (including calculation)
a) Understanding of price, income and cross elasticities of demand
b) Use formulae to calculate price, income and cross elasticities of demand
c) Interpret numerical values of:
o price elasticity of demand: unitary elastic, perfectly and relatively elastic, and perfectly and relatively inelastic
o income elasticity of demand: inferior, normal and luxury goods; relatively elastic and relatively inelastic
o cross elasticity of demand: substitutes, complementary and unrelated goods
d) The factors influencing elasticities of demand
e) The significance of elasticities of demand to firms and government in terms of:
o the imposition of indirect taxes and subsidies
o changes in real income
o changes in the prices of substitute and complementary goods
f) The relationship between price elasticity of demand and total revenue (including calculation)
Starter
Why is understanding the relationship between price and demand important?
What implications would you expect from the following price changes?
What implications would you expect from the following price changes?
http://www.dailymail.co.uk/news/article5460861/Freddochocolatebarsbiggestpricehike2000.html
Definitions
Price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price.
Income elasticity of demand (YED) measures the responsiveness of quantity demanded to a change in income.
Cross (price) elasticity of demand (XED) measures the responsiveness of quantity demanded for one good to a change in the price of another good.
Income elasticity of demand (YED) measures the responsiveness of quantity demanded to a change in income.
Cross (price) elasticity of demand (XED) measures the responsiveness of quantity demanded for one good to a change in the price of another good.
Importance PED for Firm & Government
Consider the information in the following two extracts. Why would elasticity be relevant to either economic agent?
Revision
Price Elasticity of Demand

Income Elasticity of Demand

Cross Price Elasticity of Demand
