1.2.3 Price, Income And Cross Elasticities Of Demand Flashcards
What is PED?
PED is the responsiveness in quantity demanded to a change in price.
What will the PED value always be?
PED will always be negative and you should ignore the sign.
What does a PED value of 0 mean?
PED of 0 means the product is perfectly inelastic
What does a PED value from 0-1 mean?
A PED from 0-1 means the product is relatively inelastic and is typically and addictive product.
What does a PED value of 1 mean?
A PED value of 1 means the product is unitary elastic so quantity demanded = price.
What does a PED value from 1- infinity mean?
A PED value of 1-infinity means that the product is relatively elastic and would usually be a luxury product
What is the formula for PED?
PED = %change in quantity demanded / %change in price
What are the factors affecting PED?
The availability of substitutes, Addictiveness of the product, Price of product as a proportion of income, Time period
What is YED?
YED is the responsiveness in change of quantity demanded to a change in income
What is the formula for YED?
YED = %change in quantity demanded / %change in income
What does a YED value from 0-1 mean?
Means that the product is a normal necessity so demand increases when income increases (inelastic)
What does a YED value of YED>0 mean?
When YED>0 it is a normal luxury good so demand increases when income increases (elastic)
What does a YED value of YED<0 mean?
When YED<0 this means the product is an inferior good so when income increases demand increases
Can a YED value be positive or negative?
Yes, a YED value can be either positive or negative.
What are the factors affecting YED?
Any factors that affects the wage of workers also affects YED. Such as minimum wage, taxation, increased international trade.
