Price elasticity of demand (PED) (2) Lesson aims: To give examples of elastic and inelastic goods To explain reasons why a good might be price elastic or price inelastic in demand To draw a relatively elastic and relatively inelastic demand curve To show on a demand curve where demand is price elastic and price inelastic
Starter (3 minutes): l List goods and services that people ‘need’ or want very much to help l List goods and services that people want or do not necessarily need
Recap l What is price elasticity of demand? l What is the formula to calculate price elasticity of demand? l What is elastic demand? l What is inelastic demand?
Price elasticity of demand l Can you think of any examples of products you think may be price: a) Elastic b) Inelastic in demand? l Why are they elastic/inelastic?
Question 3, p.68 (12 minutes) Write explanations for each good
Reasons for a good being: ElasticInelastic ü Few substitutes ü Necessity ü Addictive ü Cheap ü Brand loyalty û Lots of substitutes û Non-essential û Luxury good û Expensive û Little brand loyalty
Graphical representation l We can find whether a product is price elastic or inelastic at different price levels by looking at a demand curve and calculating l See Fig.2, p.69: l At A, the PED is infinity, as the QD is zero l At C, the PED is 0, as P is zero l At B, halfway along the line, it is 1 l Demand is therefore elastic on the upper half of the line, and inelastic on the lower half; either side of point B
Question 4, p.70 (5 minutes) Use Fig.2, p.69 to help you
Price elastic and price inelastic demand curves (relatively)… Draw these examples (fig. 4) in your notes
The determinants of price elasticity of demand l PED can vary and can change, and can be determined by several factors (some of which have been mentioned), it is worth noting: Time Width of market definition The availability (and closeness) of substitutes
Question: As a business, would you prefer your good to be price elastic or price inelastic?
Homework Food prices, p.73 Reading – Chapter 10
Draw: l Perfect elasticity l Perfect inelasticity l Unitary elasticity l Relatively elastic l Relatively inelastic
So… l What reasons are there for a good being price elastic and price inelastic? l What examples are there of goods being price elastic and price inelastic? l Where on a straight demand curve is the PED likely to be elastic and inelastic? l As a business, why might you prefer your PED to be elastic or inelastic?