The income of the consumer also affects the elasticity of demand. Based on this, the curve of demand changes its position in the demand graph. Income elasticity of demand yed shows the effect of a change in income on quantity demanded. Introduction to price elasticity of demand video khan. Ped measures the responsiveness of demand after a change in price inelastic or elastic. In chapter 2, we learnt that a fall in price will lead to an increase in quantity demanded and vice versa. Explain the usefulness of ped and yed concepts to a producer in trying to maximize revenue. A level economics revision flashcards these superb packs of. Which of the following factors would not help to explain this. Yed can be calculated using the following equation. The key is to understand the formula for calculating the coefficient of price elasticity, the factors that affect. Because producers must pay expenses to produce a product and because they expect to earn a profit, producers will increase the supply in proportion to the price at which they can sell.
With a downwardsloping demand curve, price and quantity demanded move in opposite directions, so the price elasticity of demand is always negative. Determinants of demand the concept of determinants of demand has coined from the economics. Powered by pressbooks guides and tutorials youtube pressbooks on youtube pressbooks on twitter. Air travel and train travel are weak substitutes for intercontinental flights but closer substitutes for journeys of around 200400km e. The profitmaximizing quantity, in turn, depends on a number of different factors. An explanation of what influences elasticity, the importance of elasticity and impact of taxes. Supply is a schedule showing the relationship between what producers are willing to produce at each price during a specific period. Ped is elastic, so quantity demanded is more than proportionately responsive to a change. Short run is meant by a period of time short enough so that the quantity of one or more factors of production used to produce a specific good cannot be changed.
Price elasticity of demand ped or ed is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to increase in its price when nothing but the price changes. If the price of petrol increased from p to 140p and demand fell from 10,000 units to 9,900. A crosscountry empirical study lionel robbins lectures barro, robert j. In this study guide, i have outlined the definitions, explanations, diagrams. I found the book is to be a complete text where students find content, practice materials and chapter end exercises which build their confidence to face the cambridge assessment. Price elasticity of demand from economics online on vimeo.
In time period, it is divided into short run and long run. Another important determinant of the elasticity of demand is how much it accounts for in consumers budget. Well have it back up and running as soon as possible. Start studying determinants and applications of ped,pes,xed,yed. Aa a level economics ear 1 microeconomics knowledge book. The study of economics is essentially about dealing with scarcity, resource allocation and the methods and processes by which choices are made in the satisfaction of human wants. Price elasticity of demand ped shows the relationship between price and quantity demanded and provides a precise calculation of the effect of a change in price on quantity demanded. For example, if a business finds out its ped is very inelastic, it may want to raise its prices. Determinants of tourism and its potential for economic development. Start studying four determinants of price elasticity of demand. Ped percentage change in quantity demandedpercentage change in price. Elasticity is a central concept in economics, and can be applied in many situations. I have been teaching cambridge igcse economics for 9 years, and complete economics is our main text book.
Determinants of supply increased supply economics concepts. The increases or decrease or the rise or fall in supply may take place on account of various factors. Ib economicsmicroeconomicselasticities wikibooks, open. This is economics sl, so it does not include any hl topics. Many students have gotten an a and a referring this book. What are the four determinants of price elasticity and. This topic video looks at the basics of price elasticity of demand and the factors that influence the coefficient of elasticity. The factors that determine the price elasticity of demand for a good are. He writes extensively and is a contributor and presenter on cpd conferences in the uk and overseas. Determinants of economic growth, based on robert barros lionel robbins memorial lectures, delivered at the london school of economics in february 1996, summarizes this important literature. Some of these areown price of the good, prices of related substitute and complementary goods, income of the present and the potential buyers, number of buyers, tastes and habits and preferences of the buyers, etc. Price elasticity of demand measures the responsiveness of demand after a change in a products own price. There are many determinants of the demand for a good.
Thus, the price elasticity of demand of this firms product is high. When the equation gives a positive result, the good is a normal good. The determinants of price elasticity of demand will be discussed in greater detail in. Ib economicsmicroeconomicselasticities wikibooks, open books.
The strong links between socioeconomic factors or policies and health were documented in the world health organization who commission on social determinants of health report. Explain the usefulness of ped and yed concepts to a producer. So im using selected chapters from the microeconomics portion of greg mankiws principles of economics, and i add a few dozen readings from. More specifically, it is the percentage change in quantity demanded in response to a one percent change in price when all other determinants of demand are held constant. Elasticity microeconomics study guide this girl reina.
Jun 14, 2018 complete economics for cambridge igcse r and o level by dan moynihan, 9780198409700, available at book depository with free delivery worldwide. If a business finds that its ped is very elastic, it may wish to lower its prices. Ped may be important for businesses attempting to distinguish how to maximize revenue. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price. Online resource centre chapter 04 oxford university press. For highincome groups, the demand is said to be less elastic as the rise or fall in the price will not have much. Geoff riley frsa has been teaching economics for over thirty years. Mankiws textbook on determinants of demand elasticity econlib. If the ped for a good is equal to one, the demand is unit price elastic which means that a. However, given any change in price, in addition to the direction of the change in quantity demanded, economists are. This is perhaps the most important microeconomic concept that you will come across in your initial studies of economics.
Introduction to price elasticity of demand video khan academy. Apr 16, 2016 this topic video looks at the basics of price elasticity of demand and the factors that influence the coefficient of elasticity. Mathematically the value is negative, but we treat it as positive. The book is available in the major bookstores in singapore. What are the determinants of price elasticity of demand. Price elasticity of demand ped refers to the degree of responsiveness of quantity demanded when there is a given change in the price of a product.
Even before you learn about the different determinants, it will help to know what yed is. To work out elasticity of demand, it is necessary to first calculate the percentage change in quantity demanded. Price elasticity of demand ped measures the responsiveness of demand after a change in price. Jan 16, 2018 microeconomics is split into 4 main units. Determinants of supply are those factors which could change the supply or shift the supply curve. Because the price elasticity of demand shows the responsiveness of quantity demanded to a price change, assuming that other factors that influence demand are unchanged, it reflects movements along a demand curve. The price elasticity of demand ped measures the change in demand for a. Determinants in price elasticity of supply economics essay. For example, if there is a 10% rise in the price of a tea and it leads to reduction in its demanded by 20%, the price elasticity of demand will be. With the change of situation, it also changes its phase. The price elasticity of demand ped is a measure that captures the responsiveness of a goods quantity demanded to a change in its price.
The number of close substitutes the more close substitutes there are in the market, the more elastic is demand because consumers find it easy to switch. Determinants of ped 618 by openlectures what are the underlying factors that result in the various ped values. If a product has many close substitutes, for example, fast food, then people tend to react strongly to a price increase of one firms fast food. Income elasticity of demand economics online economics. Competitive markets, elasticity, government intervention, and market failure. Explaining price elasticity of demand economics tutor2u.
Complete economics for cambridge igcse r and o level. In this video, explore a simple way to calculate the price elasticity of demand, how to interpret that calculation, and how price elasticity of demand varies along a demand curve. Price elasticity of demand ped, which measures the responsiveness of. Consumers will turn to the substitute goods instead of buying a good that suddenly has become more expensive. Oct 26, 2012 determinants of ped 618 by openlectures what are the underlying factors that result in the various ped values. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities. On the other hand, according to alfred marshall, price elasticity of demand ped or e d is a measurement used in economics to illustrate the responsiveness or elasticity, of the quantity demanded of a good or service to a change in its price.
In this study guide, i have outlined the definitions, explanations, diagrams, and real life examples dede for elasticity. Who the economics of the social determinants of health. This is a type of program that comes with a multidocument interface. The paper conducts a qualitative narrative appraisal of the existing empirical literature on the key macroeconomic determinants of economic growth in developing and developed countries. In this video, explore a simple way to calculate the price elasticity of demand, how to interpret that calculation, and how price elasticity of. Relevant diagrams and evaluation to go with basic definitions and concepts. The price elasticity of demand tells us the relative amount by which the quantity demanded will change in response to a change in the price of a particular good.
What are the four determinants of price elasticity and demand. Determinants and applications of ped,pes,xed,yed economics. Income is an important determinant of consumer demand, and yed shows precisely the extent to which changes in income lead to changes in demand. Economic supplyhow much of an item a firm or market of firms is willing to produce and sellis determined by what production quantity maximizes a firms profits. Price elasticity of demand ped measures the extent to which the quantity demanded changes when the price of the product changes. Price elasticity of demand ped is the concept in the history of economics elasticity used to show the responsiveness of the quantity demanded of a good or service to a change in its price.
Apart from the price, there are several other factors that influence the elasticity of demand. Determinants of price elasticity of demand video khan academy. Factors affecting price elasticity of demand economics. Determinants of tourism and its potential for economic. If price increases by 10% and demand for cds fell by 20%. Now that you know what this is, you need to know the determinants. Explain the usefulness of ped and yed concepts to a. In other words, the proportion of consumers income spent on a particular commodity also influences the elasticity of demand for it. Price elasticity of demand ped price elasticity of demand and its determinants price elasticity of demand. Four determinants of price elasticity of demand flashcards. Like ped, the steeper the supply curve, the more price inelastic unresponsive the supply. A normal good is one where demand is directly proportional to income. When the supply of the commodity rises or falls due to nonprice determinants, the supply is said to have increased supply or decreased supply.
Elasticity types of elasticity economics online economics online. Aa a level economics knowledge book more economics revision and support at. Students can refer to economics a singapore perspective for the diagrams. For highincome groups, the demand is said to be less elastic as the rise or fall in the price will not have much effect on the demand for a product. Price elasticity of demand and monopolistic competition. There are several factors that affect how elastic or inelastic the price. If the price of a new novel is high, a person might decide to borrow the book from the public library rather than buy it. Economists use the concept of price elasticity of demand to describe how the quantity demanded changes in response to a price change. He has over twenty years experience as head of economics at leading schools. Determinants of price elasticity of demand goods economics.
Learn vocabulary, terms, and more with flashcards, games, and other study tools. The purpose of this study is to examine the factors affecting the financial wellbeing among public and private employees in malaysia. By seeing the curve lines in the graph, economists can determine the present demand background in the financial. The three determinants of price elasticity of demand are. A number between 0 and 1 means the good has price inelastic supply. If there are many substitutes available, consumers can easily switch. Economics revision guide e book designed for as level. Table of contents topic pack microeconomics introduction 1. In economics, demand is the desire to own anything, the ability to pay for it. The financial section of the world is the transient one. The economics of the social determinants of health and health inequalities.
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