Cambridge International as and a level Economics Ebook

Figure 2.5 
A perfectly elastic demand curve
46
Cambridge International AS Level Economics

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the relative proportion of income accounted for by the 
product, the higher the PED, other things being equal.
SELF-ASSESSMENT TASK 
2.6
1
Classify the following products into whether, in 
your opinion, the PED is likely to be relatively 
high (elastic) or relatively low (inelastic). Justify 
your classifi cation.
■ 
Coca-Cola
■ 
Nike trainers
■ 
a particular brand of petrol
■ 
fresh vegetables
■ 
Cadbury’s chocolate
■ 
all forms of car fuel
■ 
soft drinks in general
■ 
all sweet/candy products
■ 
wheat fl our.
2
A manufacturer has received a market research 
estimate of PED values for its shirts currently 
sold in three markets: independent retailers, 
prestige fashion stores and via mail order. Explain 
and comment upon the PED values shown in 
Table 2.4
.
Market
Current 
price
Current 
sales
PED 
value
Independent 
retailers
$8
40,000 p.a.
1.0
Fashion 
stores
$15
10,000 p.a.
0.2
Mail order
$10
3,000 p.a.
3.0
Table 2.4 
PED values
Time
In the short term, perhaps weeks or months, people may 
fi nd it hard to change their spending patterns. However, if 
the price of a product goes up and stays up, then over time 
people will fi nd ways of adapting and adjusting, so the 
PED is likely to increase over time.
PED and a downward-sloping linear 
demand curve
So far PED and the slope of a demand curve may appear to 
be the same – this is, however, incorrect. Self-assessment 
task 2.7 will help you see the diff erence.