E.g. Their info on Elasticity teaching
Microeconomics: How competitive markets work >
Learners should be able to:
explain what is meant by elasticity
explain what is meant by price elasticity of demand (PED)
calculate PED using point elasticity
explain, with the aid of a diagram, the different values of PED
explain why price elasticity of demand varies along a straight line demand curve
explain, with the aid of a diagram, the relationship between PED and a firm’s total revenue
evaluate the factors which determine the degree of PED
evaluate the effect of PED on the impact of an indirect tax and of a subsidy
explain what is meant by income elasticity of demand (YED)
evaluate the significance of the numerical value and sign of YED
explain the difference in YED of inferior, normal and superior goods
explain what is meant by cross elasticity of demand (XED)
evaluate the significance of the numerical value and sign of XED
explain the difference in XED of substitute, complementary and non-related goods
explain what is meant by price elasticity of supply (PES)
calculate PES using point elasticity
explain, with the aid of a diagram, the different values of PES
evaluate the factors which determine the degree of price elasticity of supply
evaluate the usefulness of and significance of PED, YED, XED and PES to all economic agents.
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
Links: ‘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.