A Level Economics Paper 3 Revision Doc
Price elasticity of demand
Responsiveness of quantity demanded relative to a change in the price
What impacts PED
Substitutes (more substitutes = more elastic)
Percentage of income (costs more of income = more elastic
Luxury (more luxury = more elastic)
Addictive (more addictive = more inelastic)
Time (over time may change from peak vs off peak times)
Eg cigarettes very price inelastic
,Income elasticity of demand
The responsiveness of quantity demanded relative to a change in income
YED > 1 = demand income is elastic = luxury goods
YED = 0-1 = demand income inelastic = staple goods
YED < 0 = inferior good
YED > 0 = normal good
Cross elasticity of demand
Responsiveness of quantity demanded of one good relative to the change in price of another good
,Externalities
- Private costs and benefits are costs and benefits that are borne solely by the individuals involved in the
transaction
- An externality is a cost or benefit that accrues to someone who is not the buyer (demander) or the seller
(supplier)
- If externalities exist, it means that those involved in the demand and supply of the market are not considering
all the costs and benefits when making their market decisions As a result, the market fails to yield optimal
results
Private benefit
- The benefit of an economic activity to the individual firm / consumer
Social benefit
- The benefit of an economic activity enjoyed by the whole society
External benefit
- Positive externalities - the benefit of an activity enjoyed by the rest of society (those not part of the activity)
Externality diagrams
,
Price elasticity of demand
Responsiveness of quantity demanded relative to a change in the price
What impacts PED
Substitutes (more substitutes = more elastic)
Percentage of income (costs more of income = more elastic
Luxury (more luxury = more elastic)
Addictive (more addictive = more inelastic)
Time (over time may change from peak vs off peak times)
Eg cigarettes very price inelastic
,Income elasticity of demand
The responsiveness of quantity demanded relative to a change in income
YED > 1 = demand income is elastic = luxury goods
YED = 0-1 = demand income inelastic = staple goods
YED < 0 = inferior good
YED > 0 = normal good
Cross elasticity of demand
Responsiveness of quantity demanded of one good relative to the change in price of another good
,Externalities
- Private costs and benefits are costs and benefits that are borne solely by the individuals involved in the
transaction
- An externality is a cost or benefit that accrues to someone who is not the buyer (demander) or the seller
(supplier)
- If externalities exist, it means that those involved in the demand and supply of the market are not considering
all the costs and benefits when making their market decisions As a result, the market fails to yield optimal
results
Private benefit
- The benefit of an economic activity to the individual firm / consumer
Social benefit
- The benefit of an economic activity enjoyed by the whole society
External benefit
- Positive externalities - the benefit of an activity enjoyed by the rest of society (those not part of the activity)
Externality diagrams
,
