IBDP Economics 2.5 Elasticity of demand SL Paper 1 - New Syllabus
Question
Explain how the price elasticity of demand for a good might be affected by the number and closeness of substitutes.
▶️Answer/Explanation
Answers may include:
- definitions of price elasticity of demand and substitutes
- diagram of goods with different price elasticities of demand.
- explanation that the more close substitutes a good has the more price elastic its demand tends to be
- examples of how the number of substitutes a good has affects its price elasticity of demand.
Question
Examine the significance of price elasticity of demand for the decision making of firms and government.
▶️Answer/Explanation
Answers may include:
- definition of price elasticity of demand (PED)
- diagram to show how total revenue/tax revenue changes when price/tax changes
- explanation that a change in price will lead to a fall/rise in total revenue/tax revenue depending on the value of PED
- examples of goods where a change in price does lead to a rise/fall in total revenue/tax revenue
- synthesis or evaluation (examine the significance).