SAJC 2023 JC1 H2 Price Mechanism and its Applications Part 2 Lecture Notes_Uploaded

Price Mechanism and its Applications Part 2: Elasticities of Demand and Supply 1 1 INTRODUCTION 3 2 PRICE ELASTICITY OF DEMAND (PED) 4 2.1 Definition and formula 4 2.2 Characteristics of Price Elasticity of Demand 5 2.3 Determinants of Price Elasticity of Demand 10 2.4 Applications of Price Elasticity of Demand 13 3 INCOME ELASTICITY OF DEMAND (YED) 19 3.1 Definition and formula 19 3.2 Characteristics of Income Elasticity of Demand 19 3.3 Factors affecting Income Elasticity of Demand 21 3.4 Applications of Income Elasticity of Demand 22 4 CROSS ELASTICITY OF DEMAND (XED) 23 4.1 Definition and formula 23 4.2 Characteristics of Cross Elasticity of Demand 23 4.3 Factors influencing Cross Elasticity of Demand 25 4.4 Applications of Cross Elasticity of Demand 27 5 PRICE ELASTICITY OF SUPPLY (PES) 29 5.1 Definition and formula 29 5.2 Characteristics of Price Elasticity of Supply 29 5.3 Factors affecting Price Elasticity of Supply 30 5.4 Application of Price Elasticity of Supply 33 6 LIMITATIONS OF ELASTICITY CONCEPTS 35 7 ANNEX A: VARYING PRICE ELASTICITY OF DEMAND ALONG A STRAIGHT- LINE/ LINEAR DEMAND CURVE 39 PRICE MECHANISM AND ITS APPLICATIONS PART 2 ELASTICITIES OF DEMAND AND SUPPLY ST ANDREW’S JUNIOR COLLEGE JC1 H2 ECONOMICS 2023 The theme on Price Mechanism and its Applications provides an understanding of the various elasticity concepts and how they can be applied in the real-world context to explain the implications of differing degrees of elasticity on price and non-price decisions. For example, you will learn how changes in p rices of a product affect a firm’s sales and revenue.

Price Mechanism and its Applications Part 2: Elasticities of Demand and Supply 2 Recommended Reading List and Reference 1. Colander, David. C (2006) “Describing Supply and Demand: Elasticities” in Economics. 6th Edition, New York: McGraw Hill p 140-160 2. Maunder, Peter et al (2000) “Demand and Supply Elasticity” in Economics Explained. Revised 3rd Edition. UK: Harper Collins. p75-93 3. Parkin, Michael (2000), 5th Edition Economics, Addison-Wesley, USA. P87-100 4. Sloman, John, Wride, Alison and Garratt, Dean (2012) 8 th Edition, Economics, Prentice Hall, UK, p57-95 5. Sloman, John (2007), 4th Edition, Essentials of Economics. Prentice Hall, UK, p 54-67 6. Stanlake, GF and Grant, SJ (2000), 7 th Edition, Introductory Economics, Longman. UK, p. 76-87, 94-98 7. Arnold, Roger (2001) Economics, 5 th edition, South Western Publishing, Chapter 18, p 401 – 424. Learning Objectives By the end of this series of lectures and tutorials, you should be able to: ▪ Define price elasticity of demand, income elasticity of demand, cross elasticity of demand and price elasticity of supply. ▪ Interpret the sign(s) and magnitude of coefficient(s) of the various elasticity concepts. ▪ State the formulas of the various elasticity concepts. ▪ Explain the relati