Edexcel Business A Level Revision

Income Elasticity of demand - measures the relationship between A CHANGE IN QUANTITY DEMANDED FOR GOOD X and A CHANGE IN REAL INCOME . It also shows how responsive the demand for a product is to a change in someone's  (real) income. Formula for YED or IED: % CHANGE IN QUANTITY DEMANDED ÷  % CHANGE IN REAL INCOME ( USE IF GIVEN PERCENTAGES LIKE A 10% INCREASE ) or Y÷Q × Change in Quantity ÷ Change in income  (Y)  ( USE IF GIVEN ABSOLUTE NUMBERS/ WHOLE NUMBERS ) ( NORMAL GOODS ) (+) ▪IF INCOME GOES UP ▪ DEMAND FOR THE GOOD GOES UP ( INFERIOR GOODS ) (-) ▪IF INCOME GOES DOWN ▪ DEMAND FOR THE GOOD GOES UP EXAMPLE 1) Steak If income rises from £100 to £120 And demand for steak rises from 40 to 60 The YED is as follows: 100÷40 × 20 ÷ 20 = + 2.5 After getting this answer we must analyse 2 factors; ▪Sign ▪Size The SIGN here is positive (+). This tells us that this is a NORMAL GOOD . That means our demand changes in the sa...

Price elasticity of demand (PED) - Measures the extent to which the quantity of a product demanded is affected by a change in price. The demand for goods and services varies depending on a range of factors. Elasticity - measures the responsiveness of demand to a change in a relevant variable - such as price or income. PED IS CALCULATED AS : % Change in Quantity Demanded ÷ % Change in Price Price Elastic - More than 1 Price Inelastic - Less than 1 Unitary price elasticity - Exactly 1 Price elastic = Change in demand is more than the change in price. Price inelastic = Change in demand is less than the change in price. Unitary price elasticity = change in demand is equal to change in price. Example of Inelastic demand: Gasoline has inelastic demand . This means that when there's an increase in the price of gasoline, the quantity demanded decreases just a little bit. So when the demand is inelastic, the quantity is insensitive to a change in p...