2024 SAJC JC1 H1 Price Mechanism and its Applications Part 2 Lecture Notes

1 Important concepts and tools of analysis  Price Elasticity of Demand (PED)  Price Elasticity of Supply (PES)  Consumer Expenditure and Producer Revenue Key questions to consider 1. What is the definition and formula for price elasticity of demand (PED)? 2. What does the sign and magnitude of PED mean? 3. What are the determinants of PED? 4. How can the understanding of PED be applied in real world? 5. What is the definition and formula for price elasticity of supply (PES)? 6. What does the sign and magnitude of PES mean? 7. What are the determinants of PES? 8. How can the understanding of PES be applied in real world? 9. What are the limitations of the use of elasticity concepts? 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 prices of a product affect a firm’s sales and revenue. ST ANDREW’S JUNIOR COLLEGE JC1 H1 ECONOMICS 2024 Price Mechanism and its Applications Part 2

PRICE MECHANISM AND ITS APPLICATIONS PART 1: DEMAND, SUPPLY & PRICE DETERMINATION 2 Contents Important concepts and tools of analysis ................................................................................................... 1 Key questions to consider ........................................................................................................................ 1 INTRODUCTION ..................................................................................................................................... 3 1. PRICE ELASTICITY OF DEMAND (PED) ................................................................................................... 4 1.1. Definition & Formula .................................................................................................................... 4 1.2. Characteristics of Price Elasticity of Demand (PED) .......................................................................... 5 1.2.1. Values of Price Elasticity of Demand (PED) ........................................................................ 5 1.2.2. Graphical Representation of Price Elasticity of Demand ..................................................... 5 1.2.3. Relationship between Price Elasticity of Demand and Total Revenue .................................... 7 1.3. Determinants of Price Elasticity of Demand (PED) .......................................................................... 11 1.4. Application of Price Elasticity of Demand (PED)............................................................................. 14 1.4.1. Application by Producers .............................................................................................. 14 1.4.2. Application by Government ........................................