Resources and scarcity (Theme 2)

2.2.1, 2.2.4

price elasticity of demand definiton

a measure of how sensitive the quantity demanded is to price
determined by substitutes, whether the good is a necessity and income levels

ped formula

change in quantity demand/price (percentage changes)

ped evaluative points

how inelastic/elastic is it? put prices down or up
but this only tells us about revenue, not costs (menu costs or profit
data could be inaccurate or out of date
there may be other prices where revenue is further maximised

income elasticity of demand

a measure of how the quantity demanded of a good changes in response to changes in consumer income, indicating whether the good is a normal or inferior good.
(switch out price for income)

what type of good?

negative - inferior
between 0 and 1 - normal good
larger than one - normal luxury product

ied evaluative points

monitor income levels
sell a mixed portfolio of products
adapt marketing strategies if income changes
keep in mind target markets (are their incomes affected as much?)