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: