Economics · 5th Year · Markets, Prices, and Consumers · 2.º Período

Price Elasticity

An introduction to price elasticity of demand (PED) and price elasticity of supply (PES), including their calculation and interpretation.

TL;DR:Price elasticity measures responsiveness. It asks: if we change the price, how much will the quantity demanded or supplied actually change? For 5th Year students, this moves beyond the direction of change to the magnitude of change. They will calculate Price Elasticity of Demand (PED) and Price Elasticity of Supply (PES) and interpret what the numbers mean for businesses and government policy.

• NCCA Curriculum Specifications
• NCCA Economics LO 2.7
• NCCA Economics LO 2.8

About This Topic

Price elasticity measures responsiveness. It asks: if we change the price, how much will the quantity demanded or supplied actually change? For 5th Year students, this moves beyond the direction of change to the magnitude of change. They will calculate Price Elasticity of Demand (PED) and Price Elasticity of Supply (PES) and interpret what the numbers mean for businesses and government policy.

Understanding elasticity is crucial for explaining why some taxes (like those on cigarettes) raise a lot of revenue while others might just kill off a business. It also explains why farmers' incomes can be so volatile. Students grasp this concept faster through hands-on calculation practice and by categorizing real-world products based on their likely elasticity using peer-led 'product sort' activities.

Key Questions

1. What does price elasticity measure?
2. How do we calculate PED and PES?
3. Why is elasticity important for businesses and governments?

Watch Out for These Misconceptions

Common Misconception

Elasticity is the same as the slope of the curve.

What to Teach Instead

While related, elasticity measures percentage changes, not absolute changes. Using different scales on graphs in a group exercise can show students how a steep line might still be elastic depending on the starting point.

Common Misconception

Inelastic demand means people will buy the same amount regardless of price.

What to Teach Instead

Perfectly inelastic demand is rare; 'inelastic' usually just means the change in quantity is smaller than the change in price. Peer discussion about 'addictive' goods helps clarify this nuance.

Active Learning Ideas

Think-Pair-Share

The Elasticity Sort

Students are given a list of items (e.g., insulin, luxury watches, bread, petrol). They must rank them from most inelastic to most elastic and explain their reasoning to a partner based on 'necessity' and 'substitutes.'

20 min·Pairs

Inquiry Circle

The Revenue Challenge

Groups act as consultants for a cinema. They are given data on ticket sales at different prices. They must calculate the PED and advise the cinema whether to raise or lower prices to maximize total revenue.

40 min·Small Groups

Stations Rotation

Calculating Elasticity

Set up stations with different word problems requiring the use of the elasticity formula. Students rotate to solve them, checking their work against a key at the next station to build calculation confidence.

35 min·Small Groups

Frequently Asked Questions

How do you calculate Price Elasticity of Demand (PED)?

PED is calculated by dividing the percentage change in quantity demanded by the percentage change in price. In the NCCA course, we often use the 'arc' or 'midpoint' formula for accuracy.

What are the best hands-on strategies for teaching elasticity?

Revenue simulations are very effective. By showing students how a price increase can lead to either more or less total money depending on the product, the concept of elasticity becomes a practical business tool rather than just a math problem.

Why is PED important for the Irish government?

It helps them predict the impact of 'sin taxes' on alcohol or sugar. If demand is inelastic, the tax will raise revenue; if it's elastic, the tax will successfully reduce consumption.

What factors make supply elastic?

Supply is more elastic when firms have spare capacity, high stock levels, or can easily switch production between different products.