Elasticity Flashcards
What is price elasticity of demand?
It is defined as responsiveness of demand to change in price. In other words, it shows
percentage change in demand due to percentage change in price.
How is price elasticity of demand measured?
%change in quantity demanded/ %change in price
does the negative value sign in price elasticity of demand show any significance?
NO it only shows there is a negative relation between quantity demanded and price
What is an elastic demand in price elasticity of demand?
Elastic demand means that the proportion of quantity demanded exceeds the change in price ( For a great change in price the quantity demanded is also great). Meaning the PED is always greater than 1.
The graph will further more be flat.
Normally luxury goods have elastic demand and their
demand curve is flatter.
What is an inelastic demand in price elasticity of demand.
An Inelastic demand indicates that the proportion of quantity demanded has changed less than the actual change in price. Meaning for a greater change in price there is less change in quantity demanded meaning that the the PED will always be less than 1.
The curve will hence be steeper.
Normally necessities have inelastic demand and their
demand curve is steeper.
what is Unitary Elastic Demand in Price elasticity of demand?
This means that the proportion of change of quantity demanded is the same as the change in price. Meaning for a specific %age change in price there will be a same change in %age quantity demanded. The curve is a rectangular hyperbola and the PED = 1
What is perfect inelastic demand in price elasticity of demand?
If PED is equal to 0, it means there is a no percentage change in quantity demanded due
to a percentage change in price. Goods which have PED = 0 are said to have Perfectly
Inelastic Demand. Demand curve for goods with perfectly inelastic demand is a
vertically straight line.
What is perfect elasticity of demand ?
If PED is equal to ∞, it means there is percentage change in quantity demanded even
when there is no change in price. Goods which have PED = ∞ are said to have Perfectly
Elastic Demand. Demand curve for goods with perfectly elastic demand is a horizontally
straight line.
FACTORS INFLUENCING PRICE ELASTICITY OF DEMAND?
1) Nature of commodity: Necessity : Inelastic Luxury: Elastic 2) Availability of substitutes: Increase in price of substitute, increase in demand of primary, meaning elastic. More substitutes = more elastic 3) Proportion of income spent on a commodity 4) Number of uses of a product: 5) Habit 6) Time period
What is income elasticity of demand?
It is defined as responsiveness of demand to change in income. In other words, it shows
percentage change in demand due to percentage change in income.
How to derive Income elasticity of demand?
%age change of quantity demanded/ %age change of income
Does negative sign have any significance in income elasticity of demand?
The negative sign in income elasticity of demand indicates an inferior good.
What is positive income elastic demand?
If YED is greater than 1, it means there is a bigger percentage change in quantity
demanded due to a smaller percentage change in income. Goods which have YED > 1
are said to have Positive Income Elastic Demand.
What is positive income inelastic demand?
If YED is less than 1, it means there is a smaller percentage change in quantity
demanded due to a bigger percentage change in income. Goods which have YED < 1 are
said to have Positive Income Inelastic Demand.
what is positive unitary income unitary elastic demand?
If YED is equal to 1, it means there is an equal percentage change in quantity demanded
and percentage change in income. Goods which have YED = 1 are said to have Positive
Income Unitary Elastic Demand.
