Also cover the limitations of PED as a tool can price changes really be – calculated/tried out, where does the data come from, discuss whether big and small price changes will actually have the same proportional impact on demand. 7 Elasticity: Use the concept of income elasticity Income elasticity of demand. Idea that an increase in income may lead to to distinguish between normal and either a rise or fall in demand, hence YED can be either positive or inferior negative. Formula. Again a simple exercise involving rise in D’, ‘big ‘small rise’, fall’, fall’ with product images can get the idea across that D ‘big ‘small Income and Learners should be able to define, may rise or fall following a change in income. cross price calculate and interpret numerical elasticities of values of elasticity. Explanation of normal goods, divided into income elastic and income demand, price inelastic and inferior goods focussing again on proportionality. Illustrate elasticity of Learners should be aware of the using income-consumption graphs. supply Implications of YED for firms’ strategy not on specification, but adds a factors which influence price, – income and cross price elasticities little life to what can be a bit of a dull concept idea of a portfolio of cyclical – of demand and price elasticity of and counter-cyclical goods (Tesco) etc., or firms that have successfully supply. rebranded either up or down market (Waitrose essentials? Skoda?). Use social trends data to look at the relation of changes in income to pattern of household spending drop in food as a percentage of total – income even though spending has risen in absolute terms and relate this back to income elasticity spending may fall as a percentage of income – even if demand is rising if YED is less than 1. XED formula, substitutes and complements and positive/negative XED. – Implications of XED for (loss leaders and so on). Links between markets how changes in the price of one good have an – impact on the market for another in the context of substitutes and complements. Use loss leaders, captive products as an example of how firms might use XED for complements, and discuss advertising and product
Also cover the limitations of PED as a tool – can price changes really be calculated/tried out, where does the data come from, discuss whether big and small price changes will actually have the same proportional impact on demand. 7 Elasticity: Income and cross price elasticities of demand, price elasticity of supply Use the concept of income elasticity to distinguish between normal and inferior Learners should be able to define, calculate and interpret numerical values of elasticity. Learners should be aware of the factors which influence price, income and cross price elasticities of demand and price elasticity of supply. Income elasticity of demand. Idea that an increase in income may lead to either a rise or fall in demand, hence YED can be either positive or negative. Formula. Again a simple exercise involving ‘big rise in D’, ‘small rise’, ‘big fall’, ‘small fall’ with product images can get the idea across that D may rise or fall following a change in income. Explanation of normal goods, divided into income elastic and income inelastic and inferior goods focussing again on proportionality. Illustrate using income-consumption graphs. Implications of YED for firms’ strategy – not on specification, but adds a little life to what can be a bit of a dull concept – idea of a portfolio of cyclical and counter-cyclical goods (Tesco) etc., or firms that have successfully rebranded either up or down market (Waitrose essentials? Skoda?). Use social trends data to look at the relation of changes in income to pattern of household spending – drop in food as a percentage of total income even though spending has risen in absolute terms and relate this back to income elasticity – spending may fall as a percentage of income even if demand is rising if YED is less than 1. XED – formula, substitutes and complements and positive/negative XED. Implications of XED for (loss leaders and so on). Links between markets – how changes in the price of one good have an impact on the market for another in the context of substitutes and complements. Use loss leaders, captive products as an example of how firms might use XED for complements, and discuss advertising and product
Eduqas%20Economics%20Course%20Outline%20(from%20September%202015).docx