1.3.2 Price, income and cross elasticities of demand Flashcards
price elasticity of demand measures?
responsiveness of demand to change in price
PED =
=( % ∆ QD) / (% ∆ £)
PED
Price inelastic
- ∆£ led to smaller %∆QD
- PED=0-1 (ignoring minuses)
PED
price elastic
- ∆£ led to larger %∆QD
- PED <1
PED
perfectly inelastic
- PED = 0
- ∆£ led to no change in QD
PED
perfectly elastic
- PED = ∞
- ∆£ led to infinatley large %∆QD
PED
unitary elastic
- PED = 1
- ∆£ led to same %∆QD
PED
factors effecting
- type of good necessity vs luxary
- % of income spent on good
- avalibility of subsititues - marginre
- durability
- who pays - individual vs company
YED
YED stands for?
income elasticity of demand
YED
YED formula
= %∆QD / %∆Y
YED
YED definition
responsiveness of demand for a good to a change in consumers real income
YED
income elastic
- YED = < 1
- increase in real income = incread in %D
- luxary good = e.g. holiday
YED
income ineslastic
- YED = 0-1
- increase in real income lead to decrease decrease %
- e.g. basic neccesities
YED
negative income elasticity
- YED = > 0
- in income led to fall in demand
- e.g. inferior goods
XED
XED stands for?
cross elasticity of demand
XED
XED represents
the responsiveness of the demand for a product following a change in price of another product
XED
XED formula
= %∆QD (prod A) / %∆£ (prod B)
XED
Positive XED
indications product A and B are subsidies
XED
negative XED
indicates products A and b are complements
