Price elasticity of demand and supply

Learning objectives

Define price elasticity of demand, calculate it from the percentage changes in quantity demanded and in price, and classify the result as perfectly inelastic, inelastic, unitary elastic, elastic or perfectly elastic

Draw and interpret demand curves that show each degree of PED, and explain the main influences on PED: substitutes, necessity or luxury, the share of income spent and time

Analyse, with a calculation and a diagram, how a price change alters consumer spending and the revenue of firms when demand is elastic, inelastic or unitary elastic

Discuss how PED affects decisions made by consumers, workers, firms and the government, for example on pricing and on which goods to tax

Define price elasticity of supply, calculate it and classify the result from perfectly inelastic to perfectly elastic, drawing supply curves that show each case

Explain the main influences on PES: the time period, spare capacity, stocks and how easily resources can be switched between products