Unit 4 Business Environment - Investigate the behaviour of organisations and the market environment
Elasticity
Responsiveness of demand and supply.
Elasticity measures the responsiveness of demand and supply to external changes.
Price Elasticity of Demand
Price Elasticity of Demand (PED) measures the responsiveness of demand to a change in price.
Where there is a percentage change in price but a larger percentage change in the quantity demanded, demand is said to be elastic.
Where there is a percentage change in price but a smaller percentage change in the quantity demanded, demand is said to be inelastic.
Factors which influence the elasticity of demand.
Alternatives
Necessity or Luxury
Price Elasticity of Supply
Price Elasticity of Supply (PES) measures the responsiveness of supply to a change in price.
Where there is a percentage change in price but a larger percentage change in the quantity supplied, supply is said to be elastic.
Where there is a percentage change in price but a smaller percentage change in the quantity supplied, supply is said to be inelastic.
Factors which influence the elasticity of supply.
Time taken to grow or manufacturer the product, certain agricultural products have a relatively inelastic supply as producers can not quickly change the quantity supplied.
Income Elasticity of Demand
Income Elasticity of Demand (IED) measures the responsiveness of demand to a change in income.
Where there is a percentage change in income but a larger percentage change in the quantity demanded, demand is said to be elastic in relation to income.
Where there is a percentage change in income but a smaller percentage change in the quantity demanded, demand is said to be inelastic in relation to income.
Factors which influence the income elasticity of demand.
One factor which can determine the level of elasticity is whether the product is a luxury or a necessity. As income increases you can see demand for some products increase, some stay and others fall.
