Global trade, macroeconomics, and microeconomics are just a few of the topics covered in-depth in the OCR GCSE Economics revision notes. These notes, which include important definitions, theoretical frameworks, and practical applications, are made to help students prepare for exams effectively and ...
Evaluate the Importance of PED to producers and consumers
Why do firms want to know PED?
•To know how to maximize revenue by raising or lowering prices
•To price discriminate against different consumers
•To decide whether to even enter the market
Evaluation:
•Do firms want max revenue? Maybe they want to increase market share or profit?
•Would raising prices or price discriminating lead to negative publicity and damage revenue in the long run?
•In the long run will consumers shift away and find alternatives? PED is more elastic in the long run as
consumers find substitutes.
•It can be very difficult to calculate
•For consumers:
•They want to know PED as if it is inelastic cost rises will b e passed on (e.g. petrol rising when oil prices rise)
•If PED is inelastic then the government is likely to place taxes on the good (e.g. tobacco, petrol)
•If it is inelastic they can start looking for substitutes early
•Lets them know whether there are substitutes to buy
To evaluate:
•PED can be hard to calculate and is more elastic in the long run
•PED can vary depending on the time of year or even the weather (e.g. ice cream).
•Consumers may be unable to find substitutes
Evaluate the Importance of PES to producers and consumers
For consumers:
•If the supply is inelastic they will face a large price increase if they want to buy more (but a large price
decrease if demand for it drops). The opposite is true for elastic supply.
•Can be difficult to get any of the product if supply is highly inelastic. If prices do not rise fast enough
shortages can occur, such as ticket touts for concerts and football matches.
•If the company has an elastic PES it will rarely have empty shelves or be out of stock. This will mean
consumers will perceive the company as being reliable and will be more likely to shop there in future.
•If customers know a company has inelastic PES they know that they should look for substitutes in advance of
any price rises so they can still consume the good or service (or a similar substitute). (To evaluate, there may
not be any substitutes)
•If consumers can delay their purchase then they can take advantage of the more elastic PES in the long term.
•Consumers can stockpile goods with an inelastic PES just in case
, Evaluation can include:
•Delaying the purchase may only be possible with certain products (e.g. not essentials).
•Stockpiling may be impossible with services and difficult with perishable goods
•What if it has been miscalculated and is actually elastic when it was thought to be inelastic (or vice versa)?
•The consumer may not want more of a product, their demand may be very inelastic
•The consumers may have lots of money and not care about a rise in price
•For Producers:
•Firms prefer an elastic supply as they can respond more easily to changes in price.
•More elastic supply allows firms to offer consumers for flexibility (perhaps a wider range of products). They
can trial several products and increase output of successful ones and reduce output of unsuccessful ones (e.g. a
Cinema showing movies on different screens)
•Very inelastic supply means that price depends almost entirely on demand.
•If the company has an elastic PES it will rarely have empty shelves or be out of stock. This will mean
consumers will perceive the company as being reliable and will be more likely to shop there in future.
•Inelastic PES could lead to delays and shortages, leading to a poor reputation with consumers
Evaluation:
•PES may be very difficult to calculate.
•PES may change rapidly
•In the long run the firm will change its PES to be more elastic so a firm with a very long-term perspective will
not find an inelastic PES very important as it will only be temporary
•Do customers only care about price rather than reliability?
•Does the firm care about their reputation if customers are not repeat buyers (e.g. tourists)
Evaluate the economic impact of competition on producers and consumers
For Producers:
Benefits Costs
•It forces producers to improve efficiency. Those who are slow to adapt to changing in
This includes finding ways to decrease technoly or demands for consumers will
costs either go out of the business or forced out
•It increases productivity New technology or the needs to cut costs,
may lead to firms no longer demanding
labour and consequently leading to
unemployment
•It is likely to lead to growth in the
economy.
•Greater demand in the economy
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