LS12-LS14 Booklet

• price elasticity of demand: is a measure of the change in demand as a result of a change in price
• demand is price elastic when a change in price causes a proportionally larger change change in demand
• demand is price inelastic when a change in price causes a proportionally smaller change in demand
• The more substitutes a product has, the more elastic demand will be because consumers are more likely to switch when there is a price change
• if a product is a necessity, demand is likely to be price inelastic as people require the product no matter what the price is
• necessities are inelastic
• the more addictive a product is, the more price inelastic demand will be
• more time means that demand will be more price elastic because time gives consumers an opportunity to find alternatives
• the greater the proportion of income spent on a product, the more price elastic demand will be because consumers will be less able to afford price increases
• PED = percentage change in quantity demanded / percentage change in price
• Price elasticity of supply is measure of a change in supply as a result of a change in price
• supply is price elastic when a change in price causes a proportionally larger change in supply
• supply is price inelastic when a change in price causes a proportionally smaller chnage in supply
• price elasticity of supply (PES) = percentage change in quantity supplied / percentage change in price
• a good with high PES has many substitutes so suppliers can easily switch between supplying it or not
• a good with low PES doesnt have many substitutes so suppliers cannot easily switch between supplying it or not
• The greater amount of time needed to produce a product, the more price inelastic supply will be because firms can’t respond to changes in price quickly
• products with a short production time are price elastic as firms are able to respond to changes in price quickly
• the greater the spare capacity, the more price elastic supply will be because more factors of production are available to be used in production. Therefore, firms will be able to increase production quickly in response to changes in price
• Less spare capacity means supply is inelastic as there are less factors of production that can be used. Therefore, firms will not be able to respond to changes in price quickly
• the more finished goods available, the more price elastic supply is because firms can respond to changes in price by releasing finished stock into the market
• the more finished goods available, the more price elastic supply is because firms can respond to changes in price by releasing finished stock into the market
• the greater the time period, the more price elastic supply is because firms can expand or reduce production quickly
• the more perishable a product is, the more price inelastic is because it is harder to build up stocks of that product
• obsolete stock is how quickly a product becomes old as a result of technological advancements. If a product is obsolete, the more price inelastic supply is