1.2.3 Glossary PED/ YED/ XED/ PES

Question 1

Price elasticity of demand

Answer 1

Measures the responsiveness of quantity demanded of a good or service given a change in price

PED = percentage change of quantity demanded / percentage change of price

Question 2

Cross elasticity of demand

Answer 2

Measures the responsiveness of quantity demanded of one good/service given a change in the price of another product.

XED = percentage change of quantity demanded of product A / percentage change of price of product B

Question 3

Income elasticity of demand

Answer 3

Measures the responsiveness of quantity demanded of a good or service given a change income.

YED = percentage change of quantity demanded / percentage change of income

Question 4

Price elasticity of supply

Answer 4

Measures the responsiveness of quantity supplied given a change in price.

PES = percentage change of quantity supplied / percentage change of price

Question 5

PED is greater than 1

Answer 5

Demand is price elastic.

Question 6

PED is less than 1

Answer 6

Demand is price inelastic.

Question 7

PED is zero

Answer 7

Demand is perfectly price inelastic.

Question 8

PED is infinity

Answer 8

Demand is perfectly price elastic.

Question 9

PED is 1

Answer 9

Demand is unit price elastic.

Question 10

YED is greater than 1

Answer 10

Demand is income elastic and the product is a luxury (normal) good.

Question 11

YED is less than 1

Answer 11

Demand is income inelastic and the product is a necessity (normal good).

Question 12

YED is negative

Answer 12

The product is an inferior good.

Question 13

XED is greater than 1

Answer 13

XED is elastic, the product is a strong substitute.

Question 14

XED is less than 1

Answer 14

XED is inelastic, the product is a weak substitute.

Question 15

XED is negative and greater than 1

Answer 15

XED is elastic and the products are strong complements.

Question 16

XED is negative and less than 1

Answer 16

XED is inelastic and the product is a weak complement.