13 October – IB Economics

• Review• Practice exam question• Small mistake on p. 47• Review PED• Survey classmates to determine PED• Be introduced to XED• IF time: Go over Paper 1-style questions

- Portfolio check on 24 October (Unit 1 reading notes, class notes and dictionary)- Practice exam question on 24 OctoberWhat is XED and how is it calculated?

Practice Exam Question – 24 October

• Paper 1 question• Both questions are on PED (Syllabus #18-19)• Command term for (a) – Explain• Command term for (b) – Examine• Have 1 hour (normally 45 minutes)• Please bring lined paper

Elasticity along a straight line

http://www.dineshbakshi.com/images/economics_diagrams/linear-demand-curve.jpg

Why?

http://www.amosweb.com/images/ElDm33c.gif

Mathematical explanation

But it’s also logical: The demand for higher priced goods is more sensitive to price changes.

Determinants of PED

• Substitutes available• Necessity of product• How widely the product is defined• Time period

How Much is Spent on Halloween?

• Halloween is one category that has bounced back quickly from the recession.

• “According to the National Retail Federation, a record 170 million Americans will spend close to 8 billion US dollars (about 6,000,000,000 Euro) on candy, pumpkins, decorations and costumes – both for them and their pets.”

• The average American spends about 80 US dollars (60 Euro).

Source: Time Magazine (2012)

Is the demand for Halloween candy elastic or inelastic?

Before Halloween…

Source: http://kyleodonnell.wordpress.com/2012/10/14/halloween-candy-and-its-effects-on-the-elasticity-of-supply-demand-and-waistbands/

After Halloween…

Source: http://kyleodonnell.wordpress.com/2012/10/14/halloween-candy-and-its-effects-on-the-elasticity-of-supply-demand-and-waistbands/

Why is PED relatively low for commodities and relatively high for manufactured goods?

Cross Price Elasticity of Demand (XED) Syllabus Items 20

• Outline the concept of cross price elasticity of demand, understanding that it involves responsiveness of demand for one good (and hence a shifting demand curve) to a change in the price of another good.

• Calculate XED using the following equation. XED=percentage change in quantity demanded of good x divided by percentage change in price of good y

What does the sign mean?Good Good with Price

ChangeXED

Butter Margarine +0.81

Beef Pork +0.28

Entertainment Food -0.72

Source: http://en.wikipedia.org/wiki/Cross_elasticity_of_demand

Look at the figure on p. 54.

XED Graphs (on IWB)

Student Workpoint 4.5

Syllabus

http://ibeconomics-isd.weebly.com/