Ib Economics Notes Grade 11

3816 Words Dec 27th, 2012 16 Pages
Price elasticity of demand (PED)
Law of demand tells us that P goes up Q goes down or P goes down and Q goes up.
But it doesn’t give us any information about by how much Q changes compared to P.
We want to know, using the PED, whether Q is changing by a lot compared to P, by a little bit compared to P or by the same rate as P.
If %∆P<%∆Q, this good is called relatively elastic.
If %∆P>%∆Q, this good is called relatively inelastic.
If %∆P=%∆Q, this good is called unit elastic.
Determinants of the PED
->Things that tell us what the PED is originally.
1) availability of substitutes –the more substitutes a good has, the easier it is for consumers to switch products if the price changes
EX: if one brand of T-shirt is more
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