Clear info (possibly the same with other topics)
Explanation (from the topic info? Credit/thanks)
Students need to understand that all forms of elasticity are about the responsiveness of one dependent variable to a change in a determinant variable, the key word here being “responsiveness”.
The determinant variable in PED, PES and XED is price, whilst in YED it is income.
In each case, a change in the determinant variable causes a change in a dependent variable and it is the size of this second change in relation to the first that is the focus of the study of elasticity.
Approaches to teaching the content
It is well worth spending time on whichever type of elasticity you choose to teach first, usually PED, in order to establish the features of elasticity common to all types: the issue of responsiveness; the calculation of the coefficient of elasticity.
When teaching each individual type, one should make clear the determinants of elasticity for that type and the relevance to firms of the results of the calculation of the coefficient of elasticity.
Common misconceptions or difficulties students may have :
Some students struggle with negative numbers and the way in which they indicate the degree of elasticity for PED, XED for complements and YED for inferior goods.
They know that -2 is smaller than -1 and thus find it difficult to understand that a coefficient of -2 is more elastic than a coefficient of -1.
A useful way to overcome this is to draw on the board a number line of coefficients of elasticity from -2 to +2 and to explain to students that values between -1 and +1 indicate that the response of the dependent variable is proportionally lower than the initial change in the determinant variable and can thus be categorised as inelastic.
Responses outwith this range i.e. from -1 to -2 and beyond, also from +1 to +2 and beyond, indicate that the response of the dependent variable is proportionally larger than the initial change in the determinant variable and can thus be categorised as elastic.
Conceptual links to other areas of the specification – useful ways to approach this topic to set students up for topics later in the course
‘The concept of the margin’ (A level only);
‘Supply and demand and the interaction of markets’;
‘Business objectives’ (A level only);
‘Alternative methods of government intervention’.
Degrees of elasticity of demand will be a factor which influences business decision making and so will bear recapping during the teaching of ‘Business objectives’.
When studying ‘Alternative methods of government intervention’, it is worthwhile revisiting PED and the impact of an indirect tax and a subsidy, and in particular the respective burdens borne by consumer and producer.
Price Elasticity of Demand from wiki
Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to ambiguity.
Only goods which do not conform to the law of demand, such as Veblen and Giffen goods, have a positive PED.
In general, the demand for a good is said to be inelastic (or relatively inelastic) when the PED is less than one (in absolute value): that is, changes in price have a relatively small effect on the quantity of the good demanded.
The demand for a good is said to be elastic (or relatively elastic) when its PED is greater than one (in absolute value): that is, changes in price have a relatively large effect on the quantity of a good demanded.
Revenue is maximized when price is set so that the PED is exactly one.
The PED of a good can also be used to predict the incidence (or “burden”) of a tax on that good.
Various research methods are used to determine price elasticity, including test markets, analysis of historical sales data and conjoint analysis
Yet More info
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