1.3.2 Price, income and cross elasticities of demand Flashcards
1
Q
price elasticity of demand measures?
A
responsiveness of demand to change in price
2
Q
PED =
A
=( % ∆ QD) / (% ∆ £)
3
Q
PED
Price inelastic
A
- ∆£ led to smaller %∆QD
- PED=0-1 (ignoring minuses)
4
Q
PED
price elastic
A
- ∆£ led to larger %∆QD
- PED <1
5
Q
PED
perfectly inelastic
A
- PED = 0
- ∆£ led to no change in QD
6
Q
PED
perfectly elastic
A
- PED = ∞
- ∆£ led to infinatley large %∆QD
7
Q
PED
unitary elastic
A
- PED = 1
- ∆£ led to same %∆QD
8
Q
PED
factors effecting
A
- type of good necessity vs luxary
- % of income spent on good
- avalibility of subsititues - marginre
- durability
- who pays - individual vs company
9
Q
YED
YED stands for?
A
income elasticity of demand
10
Q
YED
YED formula
A
= %∆QD / %∆Y
11
Q
YED
YED definition
A
responsiveness of demand for a good to a change in consumers real income
12
Q
YED
income elastic
A
- YED = < 1
- increase in real income = incread in %D
- luxary good = e.g. holiday
13
Q
YED
income ineslastic
A
- YED = 0-1
- increase in real income lead to decrease decrease %
- e.g. basic neccesities
14
Q
YED
negative income elasticity
A
- YED = > 0
- in income led to fall in demand
- e.g. inferior goods
15
Q
XED
XED stands for?
A
cross elasticity of demand
