PeD Friday Economics. Putting the nail in the coffin this time!!

Ecod

illian

Mr A

hern

First things firsthttp://ecodillian.blogspot.co.uk

Ecod

illian

Mr A

hern

Cardinal rule!!

Ecod

illian

Mr A

hern

Cardinal rule!!

Ecod

illian

Mr A

hern

Cardinal rule

• Queen (Quantity Demand)– Over

• People (Price)

% Q

% D

Ecod

illian

Mr A

hern

Another way of looking at things

An alternative to the formula is if PeD is plotted on a demand curve, a simple rule to determine if a product or service is elastic or inelastic is

• If total revenue increases in response to price fall, demand is elastic

• If total revenue decreases in response to price fall demand is inelastic

• If the total revenue remains the same this is Unitary. when a 1% change in P results in a 1% change in D (i.e. PeD of 1)

Ecod

illian

Mr A

hern

Some will already know this

Ecod

illian

Mr A

hern

A Demand Curve of an Elastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

500400300200100 600

Ecod

illian

Mr A

hern

Total Revenue at £150Price

Quantity Demanded

0

D

250

200

150

100

50

500400300200100 600

600 x 150

Ecod

illian

Mr A

hern

Total Revenue at £200Price

Quantity Demanded

0

D

250

200

150

100

50

500400300200100 600

200 x 100

Ecod

illian

Mr A

hern

A Demand Curve of an Elastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

500400300200100 600

Revenue Lost Due To Price Increase

Revenue Gained Due To Price Increase

Ecod

illian

Mr A

hern

A Demand Curve of an Inelastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

10080604020 120

Ecod

illian

Mr A

hern

A Demand Curve of an Inelastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

10080604020 120

50 x 60

Ecod

illian

Mr A

hern

A Demand Curve of an Inelastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

10080604020 120

250 x 40

Ecod

illian

Mr A

hern

A Demand Curve of an Inelastic GoodPrice

Quantity Demanded

0

D

250

200

150

100

50

10080604020 120

Revenue Gained Due

To Price Increase

Revenue Lost Due To Price Increase

Ecod

illian

Mr A

hern

A Demand Curve for a Good with Unitary Price Elasticity

Price

Quantity Demanded

0

D

y

x

z w

Ecod

illian

Mr A

hern

A Demand Curve for a Good with Unitary Price Elasticity

Price

Quantity Demanded

0

D

y

x

z w

Revenue Lost Due To Price Increase

Revenue Gained Due To Price

Increase

Revenue Lost Due To Price

Increase is exactly equal to revenue gained.

Ecod

illian

Mr A

hern

So what would you do?Would you have low or high prices if PeD was unitary? I

want an writen anser with at least 3 points for and against.

Use examples to support your answer

This is what we call Analysis!!Something we are going to

gain deeper understanding of as knowledge places us in a position to answer higher

mark questions.

Ecod

illian

Mr A

hern

South Korean Smokers Case Study