Learning objectives
Define and calculate price elasticity of demand (PED) and interpret values from perfectly inelastic to perfectly elastic
Explain the determinants of PED (availability of substitutes, necessity versus luxury, proportion of income, time) and (HL) how PED varies along a straight-line demand curve
Analyse the relationship between PED and total revenue and explain why PED matters to firms and governments, and (HL) why primary commodities have lower PED than manufactured products
Define and calculate income elasticity of demand (YED), distinguish normal (necessity and luxury) goods from inferior goods, and (HL) explain the importance of YED for firms and for sectoral change as economies grow
Define and calculate price elasticity of supply (PES) and explain its determinants: time period, mobility of factors, spare capacity and the ability to hold stocks
(HL) Explain why the PES of primary commodities is typically lower than that of manufactured products, and the consequences for price stability
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