13 October – IB Economics
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Review
Practice exam question
Small mistake on p. 47
Review PED
Survey classmates to determine PED
Be introduced to XED
IF time: Go over Paper 1-style questions
- Portfolio check on 24 October (Unit 1 reading notes,
class notes and dictionary)
- Practice exam question on 24 October
What is XED and how is it calculated?
Practice Exam Question – 24 October
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Paper 1 question
Both questions are on PED (Syllabus #18-19)
Command term for (a) – Explain
Command term for (b) – Examine
Have 1 hour (normally 45 minutes)
Please bring lined paper
Elasticity along a straight line
http://www.dineshbakshi.com/images/economics_diagrams/linear-demand-curve.jpg
Why?
Mathematical
explanation
But it’s also logical:
The demand for
higher priced
goods is more
sensitive to price
changes.
http://www.amosweb.com/images/ElDm33c.gif
Determinants of PED
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Substitutes available
Necessity of product
How widely the product is defined
Time period
How Much is Spent on
Halloween?
• Halloween is one category that has bounced back
quickly from the recession.
• “According to the National Retail Federation, a
record 170 million Americans will spend close to 8
billion US dollars (about 6,000,000,000 Euro) on
candy, pumpkins, decorations and costumes – both
for them and their pets.”
• The average American spends about 80 US dollars
(60 Euro).
Source: Time Magazine (2012)
Is the demand for Halloween candy
elastic or inelastic?
Before Halloween…
Source: http://kyleodonnell.wordpress.com/2012/10/14/halloween-candy-and-its-effects-onthe-elasticity-of-supply-demand-and-waistbands/
After Halloween…
Source: http://kyleodonnell.wordpress.com/2012/10/14/halloween-candy-and-its-effects-onthe-elasticity-of-supply-demand-and-waistbands/
Why is PED relatively low for commodities and
relatively high for manufactured goods?
Cross Price Elasticity of Demand (XED)
Syllabus Items 20
• Outline the concept of cross price elasticity of
demand, understanding that it involves
responsiveness of demand for one good (and hence
a shifting demand curve) to a change in the price of
another good.
• Calculate XED using the following equation.
XED=
percentage change in quantity demanded of good x
divided by percentage change in price of good y
What does the sign mean?
Good
XED
Butter
Good with Price
Change
Margarine
Beef
Pork
+0.28
Entertainment
Food
-0.72
+0.81
Source: http://en.wikipedia.org/wiki/Cross_elasticity_of_demand
Look at the figure on p. 54.
XED Graphs (on IWB)
Student Workpoint 4.5
Syllabus
http://ibeconomics-isd.weebly.com/