1.2.3 PED YED XED

Question 1

what is elasticity?

Answer 1

it’s the responsiveness of one vairable to changes in another

Question 2

what are the types of elasticity?

Answer 2

price elasticity of demand PED
Income elasticity of demand YED
cross elasticity XED
Price elasticity of supply PES

Question 3

what is the price elasticity of demand PED?

Answer 3

it measures the responsiveness of the quantity demanded when there is a change in price

Question 4

How to calculate PED?

Answer 4

Queue before you pee

percentage change of Qd/Percentage change of price

Question 5

What happens if PED value is > than 1

Answer 5

Demand is price-elastic

as there is a greater proportionate change in quantity demanded eg price goes down 5 percent but Qd up 15 percent.

Question 6

what happens if PED value is < than 1

Answer 6

Demand is price inelastic

this means as price changes Qd will change but proportionally smaller/less
eg price goes down 5 percent but Qd up 1 percent

Question 7

what happens if PED value is 0

Answer 7

it is perfectly inelastic demand
this means regardless of price change Qd wont change.

Question 8

what happens if the PED value is infinite?

this is extreme case

Answer 8

Demand is perfectly price-elastic

it’s a extreme case of responsiveness
any price change will lead to total collapse of demand

Question 9

what happens if PED value is 1?

this is extreme case

Answer 9

it means demand is unit price elastic(unitary)

-Qd changes in exact proportion as price change

E.G Price change of 5 percent leads to a 5 percent change in Qd

Question 10

When is demand for a good/service price elastic or inelastic?
basically, list the determinants of PED?

Answer 10

SPLAT

-Substitutes (num of them) if there are more subs then demand is going to be price elastic (vice versa)
e.g oil has fewer subs so it has price inelastic demand

-Percentage of income: if the percentage of income is greater that a price change takes the more price elastic demand is going to be(vice versa)e.g 10% percent increase in car price takes a chunk of income.

-Luxury/Necessity
Luxuries have more price-elastic demand
necessities have more price inelastic demand.

-Addictive habitual consumption
addictive goods are price inelastic

-Time period
Short run demand is price inelastic as consumers don’t have time to look at alternatives.
Long run is elastic as more subs become avaliable

Question 11

what is YED?

Answer 11

income elasticity of demand

measures the responsiveness of quantity demanded for a good when income changes

Question 12

what is the equation for YED?

Answer 12

Quiy memory device

percentage change of Qd/percentage change in income

Question 13

In YED what does it mean when a figure is + or minus?

Answer 13

if + its a normal good (positive)

if - its a inferior good (negative)

Question 14

what happens if normal good is > 1

what happens if normal good < 1

Answer 14

demand is income elastic normal luxury

demand is income inelastic normal necessity

Question 15

what happens if inferior good is > 1

what happens if inferior good is < 1

what happens if income is 0

Answer 15

demand is income-elastic

demand is income inelastic

demand is perfectly income inelastic

Question 16

what is the cross elasticity of demand XED?

Answer 16

it measures the responsiveness of quantity demanded of a good/service given a change in the price of another.

Question 17

how to calculate XED?

Answer 17

Quantity of Good A/Price of good B = XED of A with respect to B

Question 18

What does it mean if XED figure is positive or negative?

Answer 18

if positive its substitutes good

if negative its a complement good

Question 19

what happens if the XED value is greater than 1?

what happens if XED value is less than 1?

Answer 19

if greater than 1 demand between the goods is price elastic meaning their strongly related.

if less than 1 demand between the goods is price inelastic meaning they have a weak relationship.

Question 20

what happens if XED value is 0?

Answer 20

if value is 0 demand between goods is perfectly price inelastic meaning there is no relationship between them.

Question 21

what does it mean if XED value is closer to zero or further away from zero?

Answer 21

closer to zero = weak relationship

further from zero = strong relationship

zero = no relationship