Preview
PED Along a Linear Demand Curve & Primary Commodities vs Manufactured Goods
IB DP Economics — Unit 2: Microeconomics | HL | 2.5 Elasticities of Demand (HL Extension)
📋 What You Will Learn
- Explain why PED varies at every point along a linear (straight-line) demand curve
- Calculate PED at specific points on a linear demand curve using the point elasticity method
- Identify the relationship between PED, price, and total revenue along a linear demand curve
- Analyse why primary commodities typically have more inelastic demand than manufactured goods
- Apply the PED distinction between commodities and manufactured goods to explain price volatility and trade patterns
- Evaluate the implications of low PED for commodity-dependent developing economies
🔍 Guiding Question Why do small changes in the supply of coffee or copper cause dramatic swings in price and export revenue — while the same shock to a manufactured goods market produces a far more muted response?
🌍 Why This Matters In 2022–23, global coffee prices swung by over 40% in twelve months due to drought in Brazil — yet world coffee consumption barely changed. Meanwhile, a 10% rise in the price of Samsung smartphones caused a measurable shift toward Xiaomi and Apple alternatives. The same demand concept — price elasticity — produces radically different outcomes depending on whether the good is a raw commodity or a differentiated manufactured product. For HL students, understanding why PED changes along a demand curve, and why commodities behave differently from manufactured goods, is essential for analysing trade, development, and pricing strategy.
Part 1 — PED Along a Linear Demand Curve
A common misconception is that a straight-line (linear) demand curve has constant elasticity. It does not. The slope of a linear demand curve is constant — but PED changes continuously along it, from highly elastic near the top to highly inelastic near the bottom.
📖 Definition — Linear Demand Curve A linear demand curve is a straight-line demand curve with a constant slope (ΔP/ΔQ is constant throughout). Despite the constant slope, PED varies at every point because the ratio of P to Q changes as we move along the curve.
🔗 Analogy — Speed vs Acceleration Think of slope as acceleration (constant on a linear curve) and PED as speed (which changes continuously). A car can accelerate at a constant rate yet travel at very different speeds at different moments. Similarly, a demand curve can have a constant slope yet exhibit very different elasticities at different price–quantity combinations.
Why PED Varies Along a Linear Demand Curve
PED is calculated as the percentage change in quantity demanded divided by the percentage change in price. Even if the absolute change in quantity for a given price change is constant (constant slope), the percentage changes differ at every point because the base values of P and Q change.
- At high prices (top of the curve): P is large relative to Q — a small absolute price change is a large percentage change; the corresponding quantity change is a large percentage of a small Q → PED is elastic (|PED| > 1)
- At the midpoint of the curve: PED = 1 (unit elastic) — the percentage change in price exactly equals the percentage change in quantity demanded
- At low prices (bottom of the curve): P is small relative to Q — a small absolute price change is a small percentage change; the corresponding quantity change is a small percentage of a large Q → PED is inelastic (|PED| < 1)
- At the y-intercept (P-axis): Q = 0, so any percentage change in Q is infinitely large → PED approaches infinity (perfectly elastic)
- At the x-intercept (Q-axis): P = 0, so any percentage change in P is infinitely large → PED approaches zero (perfectly inelastic)
💡 Key Insight — Slope ≠ Elasticity Slope = ΔP/ΔQ (constant on a linear curve). PED = (ΔQ/ΔP) × (P/Q). The second term (P/Q) changes continuously as we