PeD via graph and formula

1. First things first
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2. Cardinal rule!!

3. Cardinal rule!!

4. Cardinal rule
• Queen (Quantity Demand)
– Over
• People (Price)
% Q
% D

5. Another way of looking at
things
An alternative to the formula is if PeD is plotted on a demand
curve, a simple rule to determine if a product or service is
elastic or inelastic is
• If total revenue increases in response to price fall, demand
is elastic
• If total revenue decreases in response to price fall demand
is inelastic
• If the total revenue remains the same this is Unitary.
when a 1% change in P results in a 1% change in D
(i.e. PeD of 1)

6. Some will already know this

7. A Demand Curve of an Elastic Good
Price
Quantity Demanded
0
D
250
200
150
100
50
100 200 300 400 500 600

8. Total Revenue at £150
Price
Quantity Demanded
0
D
250
200
150
100
50
600 x 150
100 200 300 400 500 600

9. Total Revenue at £200
Price
Quantity Demanded
0
D
250
200
150
100
50
200 x 100
100 200 300 400 500 600

10. A Demand Curve of an Elastic Good
Price
Quantity Demanded
0
D
250
200
150
100
50
Revenue Gained Due
To Price
Increase
Revenue Lost Due
To Price
Increase
100 200 300 400 500 600

11. A Demand Curve of an Inelastic Good
Price
Quantity Demanded
0
D
250
200
150
100
50
20 40 60 80 100 120

12. A Demand Curve of an Inelastic Good
Price
Quantity Demanded
0
D
250
200
150
100
50
50 x 60
20 40 60 80 100 120

13. A Demand Curve of an Inelastic Good
Price
Quantity Demanded
0
D
250
200
150
100
50
250 x 40
20 40 60 80 100 120

14. A Demand Curve of an Inelastic Good
Price
Revenue Lost Due
To Price
Increase
Quantity Demanded
0
D
250
200
150
100
50
Revenue
Gained Due
To Price
Increase
20 40 60 80 100 120

15. A Demand Curve for a Good with Unitary Price
Elasticity
Price
Quantity Demanded
0
D
y
x
z w

16. A Demand Curve for a Good with Unitary Price
Elasticity
Price
Quantity Demanded
0
D
y
x
Revenue Lost Due To Price Increase
z w
Revenue
Gained
Due To
Price
Increase
Revenue Lost Due
To Price
Increase is exactly equal to
revenue gained.

17. So what would you do?
Would you have low or high
prices if PeD was unitary? I
want an writen anser with at
least 3 points for and against.
Use examples to support
your answer
This is what we call Analysis!!
Something we are going to
gain deeper understanding
of as knowledge places us in
a position to answer higher
mark questions.

18. South Korean Smokers Case
Study