Elasticities of Demand Flashcards
(22 cards)
What factors affect PED?
Substitutes
Type of good
Percentage of income spent on good
Time
How does substitutes affect PED?
The more substitutes the more PED it is
How does the type of product affect PED?
Demand for essentials is inelastic
Demand for non essentials is non elastic
How does percentage of income affect PED
More expensive = elastic
Cheap = inelastic
How does time affect PED?
In the long run demand becomes more elastic
What is the PED of an inelastic good?
PED<1
What is the PED of an elastic good?
PED>1
What is unitary elasticity?
PED = 1
PED =
Change in demand/ change in price
What YED do normal goods have?
Positive YED
0<YED<1
If YED is > 1
It is a luxury or superior good
What if YED<0?
Inferior good
YED =
Change in demand/change in income
What XED does substitutes have ?
Positive XED
What XED does complements have?
Negative XED
What XED does independents have?
0
What is the price elasticity of demand?
measure of how sensitive the quantity demanded is to its price
What is Income Elasticity of Demand?
measure of how sensitive the quantity demanded is to its income
What is the cross elasticity of demand?
how the quantity demanded of one good changes in response to a change in the price of another good
PED =
percentage change in quantity demanded / percentage change in price
YED =
percentage change in quantity demanded / percentage change in real income
XED =
percentage change in quantity demanded for good A / percentage change in quantity demanded for good B
