Business Studies Recap Day 12 - Price and Income Elasticity of Demand

 On day 12 of the Year 12 Recap we look at elasticity and the different forms of elasticity you need to be comfortable with at A-level Business.

Elasticity measures the responsiveness of a change in one variable to a change in another variable. The business application of elasticity is that a firm can use the price elasticity of demand (PED) and income elasticity of demand (YED) to their advantage when deciding upon their own strategy. If a firm knows the PED value of their product they have an insight behind the expected net impact on business revenue from a change in price. This forms the basis for a firm’s pricing strategy. The YED value helps a firm establish the expected change in demand from a change in household disposable income. This elasticity measure is important for a firm to be able to recognise how well placed it is in operating in different economic scenarios and events.

Here Jack guides you through the elasticity revision slide: