Page 80: Oxford Successful

MARGINAL UTILITY

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No part of this content may be reused, or used outside of the system without the express written permission of Curro Digital Learning.
 WHAT IS HAPPENING IN
THE WORLD
Why do you think people are prepared to pay
so much more for a Macbook pro when really, it
offers the same as any other computer!
 MARGINAL UTILITY
TEXTBOOK PAGE 80
MARGINAL UTILITY

This table shows the amount of satisfaction that a consumer receives from eating ice-cream.

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 MARGINAL UTILITY
TOTAL UTILITY MARGINAL UTILITY

This curve shows the extra bit of satisfaction that

This curve shows the total amount of satisfaction
the consumer gets from eating one more ice-cream
MARGINAL UTILITY

that the consumer gets from eating the ice-cream -

- you should notice that there is a diminishing rate
until the consumer goes into negative utility
of marginal utility as more ice-cream is consumed

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 MARGINAL UTILITY & DEMAND CURVE
DEMAND CURVE
MARGINAL UTILITY &

The demand curve shows the

amount the consumer will
purchase at different prices -
the higher the price, the less is
demanded.

NOTE: The MU curve is also

negatively sloped (like the
demand curve) as consumers
DEMAND

are willing to pay more for a

product that gives them more
satisfaction (utility). If, for
example, there are 2 products
that give the same amount of
satisfaction, a consumer would
choose the cheaper product.

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PAGE ‹#›

ACTIVITY
01.
Page 83: Oxford Successful
ACTIVITY

Complete activity 1 from your textbook on Page 83

by answering question 3. Your teacher will go
through your answers with you in class. Please
remember to answer it in your workbook and date
the activity.

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 Page 84: Oxford Successful

PRICE ELASTICITY OF DEMAND

All content in this presentation is designed exclusively for use within the Curro Digital Learning system.
No part of this content may be reused, or used outside of the system without the express written permission of Curro Digital Learning.
 WHAT IS HAPPENING IN
THE WORLD
How do you / your family react to the price of
petrol increasing?
Do you stop driving / stop taking transport to
places?
Do you rather walk?
Consider buying a bicycle?
 DEFINING PRICE ELASTICITY
Price elasticity measures how a consumer
reacts to a change in price. For example, if the
price increases, do they cut down on the
consumption of that good by a lot (elastic
PRICE ELASTICITY

demand) or do they only cut down on the

consumption of that good by a small amount
(inelastic demand)?

Different goods will have different elasticity

and will depend on various things such as - is
there a close substitute for the good (bread /
petrol), do I really need the product
(chocolates / medicine)

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 CALCULATING PRICE ELASTICITY
To find out if a product has an ELASTIC or an
INELASTIC demand curve, you need to be able
to calculate elasticity.
PRICE ELASTICITY

FORMULA: CALCULATING THE % CHANGE

PED = %∆ in Qd If the price increased from R10 to R15

%∆ in P % change (%∆)
= 10 - 15 = -5 (don't worry about the - sign) as you are just trying to
find the difference between the original and the new price)
Where:
Difference x 100 = 5 x 100 = 50%
PED = Price elasticity of demand Original price 10
∆ = change
Qd = Quantity demanded This means that the %∆P = 50%
P = Price

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 EXAMPLES: PRICE ELASTICITY
PAGE 85 IN YOUR TEXTBOOK: EXAMPLE 1

If the price increased from R1 000 to R1 250 and the quantity

demanded decreased from 100 to 50 units:
PRICE ELASTICITY

PED = %∆ in Qd
%∆ in P

%∆Qd = 100 - 50 = 50
Therefore: 50 x 100
100 (original quantity)
= 50%

%∆P = 1 000 - 1 250 = 250 (don't worry about the - sign) If PED is more than 1 - in
Therefore: 250 x 100 (don't worry about the - sign) our case it is 2 - the
1 000 (original price) product has an ELASTIC
= 25% demand curve as the %
quantity change is more
PED = %∆ in Qd = 50 than the % price changes
%∆ in P 25

Therefore PED = 2
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 EXAMPLES: PRICE ELASTICITY
PAGE 85 IN YOUR TEXTBOOK: EXAMPLE 2

If the price decreased from R1,50 to R1,20 and the quantity

demanded increased from 1 000 to 1 100 units:
PRICE ELASTICITY

PED = %∆ in Qd
%∆ in P

%∆Qd = 1 000 - 1 100 = 100

Therefore: 100 x 100
1 000 (original quantity)
= 10%

%∆P = 1,50 = 1,20 If PED is less than 1 - in

Therefore: 0,30 x 100 our case it is 0,5 - the
1,50 (original price) product has an
= 20% INELASTIC demand curve
as the % quantity change
PED = %∆ in Qd = 10% is less than the % price
%∆ in P 20% changes

Therefore PED = 0,5

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 PERFECTLY ELASTIC

Price
PRICE ELASTICITY

Perfectly elastic demand curve

Only one price is accepted and any
change in price will lead to an infinite
P1 D change in quantity demanded. In
reality, there would be no such
product as there would always be
someone who would demand the
product.

Quantity demanded / time

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 ELASTIC

Price
PRICE ELASTICITY

Elastic demand curve

This is when the % change in quantity
is more than the % change in price - in
P2 other words if the price changes by
P1 10%, quantity demanded changes by
D 70%.

Q2 Q1
Quantity demanded / time

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 UNITARY ELASTIC

Price
PRICE ELASTICITY

Unitary elastic demand curve

This is when the % change in quantity
is the same as the % change in price -
P2
in other words if the price changes by
20%, quantity demanded changes by
20%.

P1

Q2 Q1

Quantity demanded / time

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 INELASTIC

Price
PRICE ELASTICITY

Inelastic demand curve

This is when the % change in quantity
is a smaller than the % change in price
P2
- in other words if the price changes by
80%, quantity demanded changes by
10%.

P1

Q2 Q1 Quantity demanded / time

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 PERFECTLY INELASTIC

Price
PRICE ELASTICITY

Perfectly inelastic demand curve

This is when the quantity stays the
same even if there is a change in price.

Quantity demanded / time

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PAGE ‹#›

ACTIVITY
01.
Page 87: Oxford Successful
ACTIVITY

Complete activity 1 from your textbook on Page 83

by answering question all of the questions. Your
teacher will go through your answers with you in
class. Please remember to answer it in your
workbook and date the activity.

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 Page 89: Oxford Successful

PRICE ELASTICITY OF SUPPLY

All content in this presentation is designed exclusively for use within the Curro Digital Learning system.
No part of this content may be reused, or used outside of the system without the express written permission of Curro Digital Learning.
 WHAT IS HAPPENING IN
THE WORLD
Why would the Price elasticity of supply have a
positive slope?
PRICE ELASTICITY OF SUPPLY ELASTIC SUPPLY CURVE: pg 89
PES = %∆ in Qs
%∆ in P

%∆Qs = 100 - 120 = 20

Therefore: 20 x 100
100 (original quantity)
= 20%
Price of apples changes from R1,00 to R1,50
and the quantity supplied changes from 100 - %∆P = R1,00 - R1,50 = R0,50
120 units Therefore: 0,50 x 100
1,00 (original price)
= 50%

PES = %∆ in Qs = 20
%∆ in P 50

Therefore PES = 0,4

If PES is less than 1 it is said that the product has an inelastic

supply curve.

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PRICE ELASTICITY OF SUPPLY INELASTIC SUPPLY CURVE: Pg 89
PES = %∆ in Qd
%∆ in P

%∆Qs = 1 000 - 600 = 400

Therefore: 400 x 100
1 000 (original quantity)
= 40%

%∆P = R1 500 - R1 200 = R300

Therefore: 300 x 100
1 500 (original price)
= 20%

Price of cellphone change from R1 500 to PES = %∆ in Qs = 40

R1 200 and the quantity supplied changes %∆ in P 20
from 1 000 - 600 units
Therefore PES = 2

If PES is more than 1 it is said that the product has an elastic supply
curve.

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 TYPES OF PES

PES = 0
S1 PES < 1

Price
S3 PES = 1
PRICE ELASTICITY

S2

Pri
ce
S4 PES > 1

e
las
tic
anr
ge
S5 PES = ∞

Quantity / time

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PAGE ‹#›

ACTIVITY
01.
Page 91: Oxford Successful
ACTIVITY

Complete activity 1 from your textbook

by answering question all of the questions. Your
teacher will go through your answers with you in
class. Please remember to answer it in your
workbook and date the activity.

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 Page 92: Oxford Successful

FACTORS AFFECTING PRICE

ELASTICITY OF DEMAND

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No part of this content may be reused, or used outside of the system without the express written permission of Curro Digital Learning.
 WHAT IS HAPPENING IN
THE WORLD
Discuss whether adverting influences the
products that you buy.
Which adverts would affect your choice of
products?
 SUBSTITUTES
If a product has a CLOSE
FACTORS AFFECTING PED
SUBSTITUTE it would have an
ELASTIC demand curve -
meaning that if the price
increased slightly, there would
be a big decrease in quantity
demanded.
The demand for these products
are more price elastic

PROPORTION OF INCOME SPENT

If a a LARGE PORTION of income is spent on a
product, the product would be price ELASTIC.
If a SMALL PORTION of income is spent on a
product, it would be PRICE INELASTIC -
consumers would not react a lot to a change
in price.

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 DURABILITY
If a product is DURABLE it
FACTORS AFFECTING PED
would possibly be price
ELASTIC e.g. if the price of
fridges increased, consumers
would possibly keep their old
fridges whereas if a product is
NON DURABLE e.g. if the price
of milk increased, the consumer
would still buy milk which
would then be price INELASTIC.

TIME PERIOD
Consumers could take a while to adjust to price changes.
For example, when the price of electricity increases,
consumers will take quite a while to make alternative
arrangements such as solar installation. If the price of
petrol increases, consumers would also take a while to
make other arrangements such as car pooling or public
transport. Therefore, a product is price elastic if the time
period to adjust is long.
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 ADVERTISING
ADVERTISING can lead to a
FACTORS AFFECTING PED
product being more PRICE
INELASTIC as it could make
people more brand loyal - e.g. I
will ONLY wear Levi jeans.

HABIT FORMING SUBSTANCES

If a consumer is a smoker or drinks coffee, they could be
addicted to those products which are then price
INELASTIC. If the price of these products increase, the
consumer will still buy the product.

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PAGE ‹#›

ACTIVITY
01.
Page 94: Oxford Successful
ACTIVITY

Copy the table from your textbook into your

workbook which shows which products are price
elastic and which products are price inelastic

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 Page 95: Oxford Successful

INCOME ELASTICITY OF DEMAND

All content in this presentation is designed exclusively for use within the Curro Digital Learning system.
No part of this content may be reused, or used outside of the system without the express written permission of Curro Digital Learning.
 WHAT IS HAPPENING IN
THE WORLD
If you had as much money as Francoise Bettencourt
Meyers (richest woman in the world - owner of L'Oreal
skincare and cosmetics) what is the one product you
would you buy?
 DEFINING INCOME ELASTICITY
Income elasticity measures how demand
changes when consumer income changes.
INCOME ELASTICITY

Remember, income can increase and it can

also decrease.

FORMULA:

YED = %∆ in Qd
%∆ in Y
Where:

YED = Income elasticity of demand

∆ = change
Qd = Quantity demanded
Y = Income

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 NORMAL GOODS
If consumer income increases, the demand for
normal goods will increase.
INCOME ELASTICITY

If YED is more than zero but less than 1 e.g. 0,6, the
demand is relatively income inelastic i.e. if
consumer income changes, there is not much
change in Qd. Examples of such goods would be
necessities. If a consumer's income decreased, they
would still buy bread.

If YED is more than 1, the demand is relatively

income elastic i.e. if consumer income changes,
there is a bigger percentage change in Qd e.g. if a
consumer's income decreased they would cut down
on luxuries such as restaurants.

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 CALCULATION - NORMAL GOODS
PAGE 95 IN YOUR TEXTBOOK: EXAMPLE 1

A consumer's income increases by 10% and quantity demanded increases by 20%.

INCOME ELASTICITY

YED = %∆ in Qd
%∆ in Y

YED = 20%
10%
=2 (Income elastic - the % change in Qd is more than the % change in income)

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 CALCULATION - NORMAL GOODS

EXAMPLE 2 PAGE 95
INCOME ELASTICITY

A consumer's income increases from R2 000 to R3 000 and quantity demanded

increased from 100 - 120 units.

%∆Qd = 100 - 120 = -20

Therefore: 20 x 100
1 00 (original quantity)
= 20%

%∆Y = 2 000 - 3 000 = 1 000

Therefore: 1 000 x 100
2 000 (original income)
= 50%

YED = %∆ in Qd
%∆ in Y
= 20
50
=0,4 (Income inelastic - the % change in Qd is less than the % change in income)

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 INFERIOR GOODS
In this case, there is an inverse (opposite)
If consumer income increases, the demand for
relationship between income and quantity
inferior goods will decrease - in other words it has a
demanded. As income increases, quantity
negative income elasticity of demand.
INCOME ELASTICITY

demanded for the inferior good decreases.

As income decreases, quantity demanded for the
EXAMPLE:
inferior good increases.
A consumer's income increases by 20% and
quantity demanded decreases by 10%

Therefore:
YED = %∆ in Qd
%∆ in Y

YED = -10%
20%
=-5

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PAGE ‹#›

ACTIVITY
01.
Page 96: Oxford Successful
ACTIVITY

Complete activity 1 from your textbook on Page 96

by answering question all of the questions. Your
teacher will go through your answers with you in
class. Please remember to answer it in your
workbook and date the activity.

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 Page 97: Oxford Successful

CROSS PRICE ELASTICITY OF

DEMAND

All content in this presentation is designed exclusively for use within the Curro Digital Learning system.
No part of this content may be reused, or used outside of the system without the express written permission of Curro Digital Learning.
 WHAT IS HAPPENING IN
THE WORLD
Think of a product that you consume e.g. cadbury's
chocolates / Nike shoes / Pick 'n Pay clothing. Would
you substitute that product easily with another
product?
 DEFINING CROSS PRICE ELASTICITY OF DEMAND
Cross price elasticity of demand (CPED) is how a consumer reacts to a change in the price
of one product and the quantity demanded of another product.

FORMULA:
CPED

CPED = %∆ in Qd of Product A
%∆ in price of Product B

NOTE:

The CPED can be positive or negative.

POSITIVE: The 2 goods are substitutes e.g butter and margarine

e.g. an increase in price of Coke will lead to an increase in Qd of Pepsi

NEGATIVE: The 2 goods are complementary goods e.g. coffee and sugar
e.g. an increase in the price of coffee can lead to a decrease in Qd of sugar

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 CALCULATION
PAGE 97 IN YOUR TEXTBOOK: EXAMPLE 1

A 10% increase in the price of butter leads to a 15% increase in quantity demanded for margarine and the
demand curve for margarine shifts to the right.
FORMULA:
CPED

CPED = %∆ in Qd of Margarine
%∆ in price of Butter

= +15%
+10%

=+1,5 The goods are substitutes as an increase in the price of butter lead to an increase in the Qd of
margarine

NOTE: The + and - sign is now important as it determines whether the product is a substitute or
complementary product)

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 CALCULATION
PAGE 97 IN YOUR TEXTBOOK: EXAMPLE 2

Petrol increases from R8,00 to R10,00 per litre. The number of cars demanded decreases from 100 000 to 80 000 cars and the
demand curve for cars shifts to the left.

FORMULA:
CPED

CPED = %∆ in Qd of Product A
%∆ in price of Product B

%∆ in Qd for cars: 100 000 - 80 000 = 20 000 x 100

100 000
= -20%

%∆ in price of fuel: 2 x 100

8
= 25%

CPED = -20
25
= -0,8 The goods are complementary goods as an increase in the price of fuel lead to a decrease in the Qd of
vehicles.

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 IMPORTANCE OF ELASTICITY
Producers have to know how consumers will react to a change in price i.e. whether they
are sensitive to a price increase. This allows them to predict what will happen if they
increase or decrease their prices.
Price elasticity of demand therefore looks at how consumers react to a price change.
CPED

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PAGE ‹#›

ACTIVITY
01.
Page 99 - 101: Oxford Successful
ACTIVITY

Draw up the tables in your workbook with all the

graphs and explanations showing:

PED
PES
IED
CPED

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