Course review
Review each learning objective in this topic, then open its concept explanation or question set.
Learning objective
• Elasticity measures responsiveness between economic variables • Diagram: relatively elastic and relatively inelastic demand
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Learning objective
• PED equals percentage change in quantity demanded divided by percentage change in price • PED has a theoretical range of values and indicates responsiveness of demand to price • Calculation: PED, change in price, quantity demanded, or total revenue from data
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Learning objective
• PED can be perfectly elastic, perfectly inelastic, unitary, elastic, or inelastic • PED affects total revenue when price changes • Diagram: constant PED cases and unitary PED along a demand curve • Diagram: revenue changes when demand is price elastic or price inelastic
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Learning objective
• PED changes along a straight-line downward-sloping demand curve • Diagram [HL]: PED along a straight-line demand curve
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Learning objective
• PED depends on number and closeness of substitutes, necessity, income proportion, and time • PED matters for firm pricing and government decision-making
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Learning objective
• Primary commodities generally have lower PED than manufactured products • Lower substitutability and necessity can reduce responsiveness
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Learning objective
• YED equals percentage change in quantity demanded divided by percentage change in income • Positive YED identifies normal goods; negative YED identifies inferior goods • YED below one is typical of necessities; YED above one is typical of services and luxury goods • Diagram: income elastic, income inelastic, and inferior goods on an Engel curve • Calculation: YED, change in income, or quantity demanded from data
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Learning objective
• YED helps firms predict demand changes after income changes • YED helps explain changes in the sectoral structure of an economy
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