Microeconomics

Table of Contents

1. Topic pack - Microeconomics - introduction
2. 1.1 Competitive Markets: Demand and Supply
3. 1.1 Competitive Markets: Demand and Supply - notes
4. 1.1 Competitive markets - questions
5. 1.1 Competitive markets - simulations and activities
6. 1.2 Elasticities
7. 1.2 Elasticities - notes
   1. Price elasticity of demand (PED)
   2. PED values
   3. Determinants of price elasticity
   4. Calculating PED
   5. Elasticity along a straight line demand curve
   6. Elasticity and revenue
   7. PED - primary vs manufactured
   8. PED and taxation
   9. Cross elasticity of demand
   10. XED and business decisions
   11. Income elasticity of demand
   12. YED and business decisions
   13. Price elasticity of supply
   14. Possible PES values
   15. PES - calculation
   16. Determinants of PES
   17. PES - primary vs manufactured
8. Section 1.2 Elasticities - questions
9. Section 1.2 Elasticities - simulations and activities
10. 1.3 Government intervention
11. 1.3 Government Intervention - notes
12. 1.3 Government intervention - questions
13. 1.3 Government intervention - simulations and activities
14. 1.4 Market failure
15. 1.4 Market failure - notes
16. Section 1.4 Market failure - questions
17. Section 1.4 Market failure - simulations and activities
18. 1.5 Theory of the firm
19. 1.5 Theory of the firm - notes (HL only)
20. Section 1.5 Theory of the firm - questions
21. Section 1.5 Theory of the firm - simulations and activities
22. Print View

1.2 Elasticities - notes

This unit, with its numbers, will scare some students. Be positive, the maths is easy; the key is to understand what the words mean. It is the language, rather than the numbers, that is usually the problem.

In the last unit we saw what demand is, and what its determinants are. We know that demand is sensitive to changes in these determinants; it is important to know how sensitive. Economists do this by measuring elasticity. In particular, they study price, income and cross price elasticity of demand. In addition they study price elasticity of supply. This is new language, so some definitions are needed.

Elasticity is simply the economist's word for responsiveness. For example, price elasticity shows how responsive demand is to changes in price. Economists will, in this case, be measuring how much the demand for a good or service will change as a result in a change in its price. In this section we consider the following topics in detail:

• Price elasticity of demand (PED)
• Cross elasticity of demand (XED)
• Income elasticity of demand (YED)
• Price elasticity of supply (PES)
• Applications of concepts of elasticity
• PED and taxation
• Other applications of elasticity