Cambridge International as and a level Economics Ebook

SELF-ASSESSMENT TASK 
2.7
Price of product 
R (US$/unit)
Quantity demanded 
of product 
R (units per week)
10
0
9
1,000
8
2,000
7
3,000
6
4,000
5
5,000
4
6,000
3
7,000
2
8,000
1
9,000
0
10,000
Table 2.5 
Demand schedule for product R
Use the information in 
Table 2.5 
to calculate the 
PED values as prices fall from $10 to $9, from $9 to 
$8, from $8 to $7 and so on. You should see that the 
PED value falls as you move down the demand curve. 
In the top half of the demand curve, PED > 1; in the 
bottom half of the demand curve, PED < 1. We could 
show that for very small changes in price, PED 
=
1 at 
the mid-point of the demand curve. Th
at is why, in 
theory, a demand curve with unitary price elasticity 
throughout can be drawn. Total expenditure (the 
area beneath this curve) for any price quantity 
combination is constant in this situation.
Price (US$)
5000
10
9
8
7
6
5
4
3
2
1
0
Quantity demanded
D
Figure 2.6
 
The demand curve for product R
47
Chapter 2: The price system and the microeconomy 

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Income elasticity of demand
Income elasticity of demand
(YED)
is defi ned as a 
numerical measure of the responsiveness of the quantity 
demanded following a change in income. All other factors 
remain unchanged. Once again if demand is responsive, 
then it is classifi ed as elastic; if unresponsive, it is 
inelastic.
Th
e formula used in this case is:
YED
% change in quantity demanded
% change in income
=