Task on entry

Suppose that a pizza vendor at a basketball game can sell

3,000 slices of pizza per night at a price of $3 per slice. If the
vendor raises the price to $4 per slice, the number of slices sold
falls to 2,000. Based on this information, the price elasticity of
demand is?
 What factors affect price elasticity?
Lesson objectives
We are learning to explore the factors that Lesson objectives (WILF)
influence PED.

Success Criteria:
• I identify the Factors that affect price elasticity.

• I can apply the factors to examples.

Questionning skills & AFL

• 5 whys?
• Blooms
Competency Link • HOT questions
Collaboration, Critical thinking & consciousness • Stakeholder views / viewpoints

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 Starter
INELASTIC
A D
UNITARY ELASTIC
Label these graphs, as either
Unitary elastic demand, Elastic
demand, inelastic demand,
perfectly inelastic demand,
perfectly elastic demand

B C PERFECTLY INELASTIC
PERFECTLY ELASTIC

ELASTIC
What are the factors that affect PED?
 1. Availability Of Substitutes
• Let’s assume we are all consumers of fairy washing up liquid and the price of the washing up
liquid increased, do you think it would be easy for us to switch to Lux washing up liquid? And
why?

• What are some other reasons why consumers may switch their choices?

What would we call this

type of elasticity?
 2. Degree Of Necessity

Necessities
VS. Luxuries

if the price of a product that we consider a necessity like petrol goes up, what do you think consumers might do?
And what can we call this type of elasticity?
 3. Proportion Of Income Spent on A Product
In what ways do you feel a person’s income may influence the person’s buying
habits?

Tip: think in relation to the price of the goods and the product being a luxury
item or a necessity.
 4. Time
Let’s assume your prom is tonight the outfit you found is Aed400, but you can get
it for 200Aed in 3 days (when it goes on sales).
Do you have the time to wait for 3 days to buy the outfit? And can you explain the
type of elasticity we may notice here?
 AFL= Give examples of each factor
1. Availability of Substitutes
If there are few substitutes for a good, the demand will not likely decrease as price increases
(inelastic), the opposite (lots of substitutes) is also usually true (elastic)
Ex. Gasoline has no substitutes- inelastic
McDonalds has many (Burger King, etc)- elastic
2. Relative Importance (income)
Another factor determining elasticity of demand is how much of your budget you spend on the good.
Ex. Mortgage payment must be paid (inelastic)
Entertainment (movies, etc.) are elastic

3. Necessities vs. Luxuries

Whether a person considers a good to be a necessity or luxury has a great impact on the good’s
elasticity of demand for that person.
Ex. Food (inelastic)
Jewelry (elastic)
4. Change over Time
Demand sometimes becomes more elastic over time because people can eventually find substitutes.
Ex. Blockbuster used to be the only place to rent videos (inelastic)
Netflix, Video on Demand, Pay Per View, are substitutes for Blockbuster (elastic)
 Support slide
Factor Influence Example

Availability of Substitutes The more substitutes and the closer the Different types of pasta have lots of close substitutes.
substitutes are, the more elastic demand Rice and noodles can be considered substitutes for
will be. each other, but not particularly close

Time The longer the time period measured, the Petrol may have inelastic demand in the immediate
more elastic demand will be as people time period, but in the long run, if prices continue to
can make adjustments. rise, people will stop demanding petrol because they
will sell their petrol cars.

Percentage of Income the Product The larger the price of the product, the Increases in prices of cars will likely have more elastic
Costs more income is spent on it, the more demand than say increases in prices of milk.
elastic demand will be when price rises.

Necessities vs Luxuries Luxuries are not essential to existence, However there is little evidence to support this, for
meaning they will typically have more example; food is a necessity, but some food is luxury.
elastic demand. It is difficult to distinguish between food that is
consumed out of necessity and what food is luxury.
 PED RELATIONSHIP WITH TR
PRICE CHANGE CAUSE CHANGE IN QUANTITY DEMANDED THEREFORE THERE WILL BE A CHANGE IN TOTAL REVENUE

Demand for Product B is PRICE

Demand for Product A is PRICE ELASTIC.
INELASTIC. What will happen to Total Revenue of
Product B?
For Product A, when price fall from $10 Show your calculations
to $8, there is an increase in Qd from 100
to 110.

The price reduction has resulted in $120

fall,(1000-880) hence concluded
When Demand is INELASTIC, Total
Revenue will FALL.
Main task
Model answer
 Challenge yourself

When home prices fell when recession hit in 2007, demand did not rise immediately. Generate
Explanations Why might demand for housing stay flat at first even when prices fall sharply?
 Plenary
Use the factors you have learnt to decide which one of them may affect the 2
scenarios, and how