2019 Nov (Elasticity, PED) Paper 1 HL

2019 Nov (Elasticity, PED) Paper 1 HL

Price Inelastic Demand = Demand is price inelastic when a change in price causes a smaller percentage change in demand. It occurs where there is a price elasticity of demand (PED) of less than one

 

Primary Commodity = Primary commodities are goods arising directly from the use of natural resources, or the factor of production ‘land’ Ex. Food and live animals, beverages and tobacco, excluding manufactured goods; crude materials, inedible, excluding fuels, synthetic fibres, waste and scrap; mineral fuels, lubricants and related materials, excluding petroleum products; animal and vegetable oils, fats and waxes.

Low price elasticity of demand, together with fluctuations in supply over short periods of time, creates serious problems for primary commodity producers, because they result in large fluctuations in primary commodity prices, and these

also affect producers’ incomes.

Reason 1 = Lack of close substitutes

Reason 2  = High degree of necessity

Reason 3 = Low proportion of income spent on primary commodities/ low price

Reason 4 = Primary commodity being more addictive

2019 May (Indirect Tax) Paper 3 HL

2019 May (Indirect Tax) Paper 3 HL

Supply is Perfectly Inelastic therefore Producers pay all of the tax and for an explanation that equilibrium price and quantity will not change (so consumers are not affected but producers bear the full burden/incidence)

 

*Imagine there is only 1 picture painted by an artist, and then the artist dies. The supply of that good is perfectly inelastic, there is only one and there will never be another one created. Look at where the demand curve crosses the perfectly inelastic supply curve and recognize at the price of 30 (100 but lets say 1) painting would be purchased. No one will buy if the price is 35, so the seller of the painting will pay the tax to keep the price at $30.

2019 May (Elasticity, PES) Paper 3 HL

2019 May (Elasticity, PES) Paper 3 HL

(f) Define the term PES Price Elasticity of Supply.

 

PES – responsiveness of supply (Qs) to a change in price.

 

(g) Apart from time, explain 2 factors, which influence the price elasticity of supply.

 

 

Excess Capacity: Whether the firm has excess (or unused, or spare) capacity available: if it does, then increasing output will be easier so supply will be more price elastic.

Possibility of Storage: the greater the ability to store stocks, the more price elastic supply will be as firms can draw from stocks to increase the quantity supplied.

Mobility of Factors of Production: the easier it is for a producer to switch resources from one use to another, the easier it will be to increase the quantity supplied in response to an increase in the price of the product, so supply will be more elastic. (Ease of technology can be implemented/applied could be an example of this)

Rate at which Costs rise as Output Increases: the higher/faster the rate, the lower the PES.

Nature of the Product: like agricultural products, the time lag between planting and harvest is relatively long, so supply would be relatively price inelastic in the short term.

2016 (Elasticity) Paper 3 HL

2016 (Elasticity) Paper 3 HL

The gradient of a linear demand curve is constant along the curve. However the rates of change of price and quantity are not constant. As price increases, the % change in price diminishes while the % change in quantity demanded increases. Therefore the slope, which is constant, cannot represent the formula.

2017 (Monopoly, Elasticity) Paper 3 HL

2017 (Monopoly, Elasticity) 

Paper 3 HL

When demand is price inelastic, a decrease in output / increase in price will:

·      Increase total revenue

·      Decrease output and therefore total costs

·      Increase profit

·      The monopolist never wants to produce in the inelastic section of its demand curve as its MR is negative.

·      MC = MR is a condition for profit max

 

The profit-maximizing monopolist would never choose to produce on the inelastic portion of its demand curve, as profit could always be increased by raising price/decreasing output.