1. Price Elasticity of demand
REVIEW 2.5
Price Elasticity of demand

2. PED measures how responsive demand is to a change in price, e.g.
% change in quantity demanded
%change in price
Example % / 10 % = 2 = Elastic
Example 2 10% / 20 % = 0.5 = Inelastic
Example % / 10% - 1 = Unitary

3. Factors that influence PED
SUBSTITUTES - Lots of = elastic / few or none = inelastic
LUXURIES & NECESSITIES - Luxuries = elastic/ necessities = inelastic
PERCENTAGE OF INCOME SPENT ON A GOOD – Large income spent= elastic / small income = inelastic
HABIT FORMING GOODS – e.g cigarettes = inelastic
TIME – everything becomes more elastic as time goes on.
Inelastic – The QD changes at a lesser rate the price.
Elastic - The QD changes at a greater rate then price.

4. PAST PAPER QUESTIONS
2011 – 2A (2)
2010 – 2 (2)

5. REVIEW 2.6
SUPPLY

6. Contraction and Extension of supply
CONTRACTION - The fall in supply due to a fall in price.
EXTENSION - The increase in supply due to a rise in price.

7. When the supply curve shifts to the right there is an increase in supply.
When the supply curve shifts to the left there is a decrease in supply.

8. FACTORS WHICH EFFECT SUPPLY
PRODUCTIVITY – Increase = right shift
INDIRECT TAXES INCREASE - Decrease = left shift
NUMBER OF FIRMS ENTERING A MARKET – Increase = overall right shift
TECHNOLOGY- Increase – right shift
SUBSIDIES – Increase – right shift
WEATHER (POOR FOR CROPS) = left shift
COSTS OF PRODUCTION INCREASE – left shift