PeD Friday Economics. Putting the nail in the coffin this time!!
18
Ecodillia n Mr Ahern First things first http://ecodillian.blogspo t.co.uk
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PeD via graph and formula
Transcript of 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
