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Elasticity refers to the extent which the quantity supplied/demanded of a good change, in relation to other factors (e.g. price of the good and income of buyers). It can provide valuable information with regards to the relationship between goods (e.g. complements vs substitutes) and can help firms make pricing decisions. For example, if prices increased for olive oil, you would expect the change in quantity demanded for it to be low, since it is a necessity (i.e. Low PED); whereas if prices increased for T-shirts, you would expect a bigger change in quantity demanded for it, as you can replace it with other types of clothes (i.e. High PED). There are a few types of Elasticities discussed in A-Level/IB, including Price Elasticity of Demand (PED), Cross Elasticity of Demand (XED), Income Elasticity of Demand (YED) and Price Elasticity of Supply (PES).
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Elasticities MC Questions with answers (GCE A-Level)
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