1.1.4 Elasticity

Definition of PED.

Use PED = percentage change in quantity demanded ÷ percentage change in price.

Calculate the PED using given percentage changes in quantity demanded and percentage changes in price.

The use of diagrams to show price elastic and price inelastic demand.

Interpret numerical values of PED that show:

• perfect price inelasticity
• price inelasticity
• unitary price elasticity
• price elasticity
• perfect price elasticity.

The factors influencing PED, including:

• substitutes
• degree of necessity
• percentage of income spent on goods or service
• time.

Use total-revenue calculations to show how a price change affects total revenue and determine whether demand is price elastic or price inelastic.

Definition of PES.

Use PES = percentage change in quantity supplied ÷ percentage change in price.

Calculate the PES using given percentage changes in quantity supplied and percentage changes in price.

The use of diagrams to show price elastic and price inelastic supply.

Interpret numerical values of PES that show:

• perfect price inelasticity
• price inelasticity
• unitary price elasticity
• price elasticity
• perfect price elasticity.

The factors influencing PES, including:

• factors of production
• availability of stocks
• spare capacity
• time.

Use examples to show the likely price elasticity of supply for manufactured products and primary products.

Definition of income elasticity of demand.

Use income elasticity of demand = percentage change in quantity demanded ÷ percentage change in income.

Calculate the income elasticity of demand using given percentage changes in quantity demanded and percentage changes in income.

Interpret numerical values of income elasticity of demand that show:

• luxury goods
• normal goods
• inferior goods.

The significance of price and income elasticities of demand to businesses and the government, in terms of:

• the imposition of indirect taxes and subsidies
• changes in income.