Economics · Grade 10 · Markets in Action: Supply and Demand · Term 1

Price Elasticity of Demand

Students will calculate and interpret price elasticity of demand, classifying goods as elastic or inelastic.

• Ontario Curriculum Expectations
• HS.EC.2.3

About This Topic

The Laws of Demand and Supply are the fundamental tools for understanding how markets function. Students learn that as prices rise, consumers generally want less (demand) while producers want to sell more (supply). This topic covers the various factors that shift these curves, such as changes in consumer tastes, income levels, or the cost of production. In the Ontario curriculum, this provides the framework for analyzing everything from the housing market to the price of maple syrup.

By mastering these concepts, students can move beyond simply observing price changes to predicting them. They begin to see prices as signals that coordinate the actions of millions of people. This topic is best taught through active learning where students can simulate a trading floor or a marketplace to see these laws in action.

Key Questions

1. Explain how the availability of substitutes affects the price elasticity of demand.
2. Analyze why businesses consider elasticity when setting prices for their products.
3. Predict how a price change for an inelastic good will impact total revenue.

Learning Objectives

• Calculate the price elasticity of demand for various goods and services.
• Classify goods as elastic or inelastic based on their calculated price elasticity of demand.
• Analyze the relationship between the availability of substitutes and the price elasticity of demand.
• Predict the impact of price changes on total revenue for both elastic and inelastic goods.
• Evaluate how businesses use price elasticity of demand to inform pricing strategies.

Before You Start

The Law of Demand

Why: Students must understand the inverse relationship between price and quantity demanded before they can measure the responsiveness of that relationship.

Calculating Percentage Change

Why: The calculation of price elasticity of demand relies heavily on the ability to accurately compute percentage changes.

Key Vocabulary

Price Elasticity of Demand (PED)	A measure of how sensitive the quantity demanded of a good or service is to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
Elastic Demand	Occurs when the percentage change in quantity demanded is greater than the percentage change in price. Consumers are very responsive to price changes.
Inelastic Demand	Occurs when the percentage change in quantity demanded is less than the percentage change in price. Consumers are not very responsive to price changes.
Unit Elastic Demand	Occurs when the percentage change in quantity demanded is exactly equal to the percentage change in price. The elasticity coefficient is equal to -1.
Total Revenue	The total income a seller receives from selling a given quantity of a good or service, calculated as price multiplied by quantity sold.

Watch Out for These Misconceptions

Common Misconception

A change in price shifts the entire demand curve.

What to Teach Instead

A change in price only causes movement along the existing curve (change in quantity demanded). Only external factors like income or tastes shift the entire curve. Using physical 'human graphs' where students move along a line helps clarify this distinction.

Common Misconception

Supply and demand are the same thing.

What to Teach Instead

They represent two different groups with opposite incentives. Role-playing as a frustrated buyer versus a greedy seller helps students internalize the different directions of the two laws.

Active Learning Ideas

Simulation Game: The Pit Market

Students are assigned roles as buyers and sellers of a commodity with secret price limits. They move around the room to make deals, and the teacher records the transaction prices to plot a real-time supply and demand curve on the board.

50 min·Whole Class

Gallery Walk: Shifting the Curve

Posters around the room show different headlines (e.g., 'New Study Shows Blueberries Cure Colds'). Students rotate in pairs to draw the resulting shift in the demand or supply curve on the poster and explain their reasoning.

30 min·Pairs

Inquiry Circle: The Sneaker Market

Groups research a specific limited-edition product and identify three factors that caused its price to skyrocket. They must categorize these factors as either 'demand shifters' or 'supply shifters' and present their findings.

40 min·Small Groups

Real-World Connections

• Airlines constantly analyze the price elasticity of demand for flights. For leisure travelers, demand might be elastic, meaning they will book cheaper flights or travel at different times if prices rise. Business travelers often face inelastic demand, as they need to travel on specific dates regardless of price.
• Gasoline stations in a small town with few alternatives often face inelastic demand. If one station raises its price, customers have limited options and will likely continue to purchase gas there, allowing the station to increase total revenue.
• Pharmaceutical companies consider the inelastic demand for life-saving medications when setting prices. Because there are often no close substitutes for essential drugs, demand remains relatively stable even with significant price increases.

Assessment Ideas

Quick Check

Provide students with a scenario: 'The price of concert tickets increased by 10%, and the quantity demanded decreased by 20%.' Ask them to calculate the PED and classify the demand as elastic, inelastic, or unit elastic. Then, ask them to explain what this means for the total revenue of the concert promoter.

Exit Ticket

On one side of an index card, write the name of a product (e.g., a specific brand of smartphone, insulin, movie tickets). On the other side, students must write whether they believe demand for this product is generally elastic or inelastic, and provide two reasons for their classification, referencing substitutes or necessity.

Discussion Prompt

Pose the question: 'Imagine you are the manager of a popular coffee shop. How would you use the concept of price elasticity of demand to decide whether to increase the price of your lattes? What factors would you consider?' Facilitate a class discussion where students share their reasoning.

Frequently Asked Questions

What is the difference between demand and quantity demanded?

Demand refers to the entire relationship between prices and quantities, while quantity demanded is the specific amount people want at one specific price. In Grade 10, we emphasize that 'demand' only changes when an outside factor, like a trend or a new law, enters the market.

How do Canadian weather patterns affect supply?

In Canada, weather is a major 'supply shifter' for agriculture. An early frost in Ontario can decrease the supply of apples, shifting the curve to the left and raising prices. Students use these local examples to see how nature impacts the economy.

Why is a market simulation better than a lecture for this topic?

A lecture describes a market, but a simulation creates one. When students have to negotiate prices, they feel the 'pressure' of a high price as a buyer and the 'incentive' of a high price as a seller. This emotional connection helps them remember the direction of the laws of supply and demand without having to memorize them from a textbook.

What are the main factors that shift demand?

The main shifters are income, prices of related goods (substitutes and complements), tastes and preferences, expectations about the future, and the number of buyers. We often use examples like the rise of electric cars to show how tastes shift demand.