1C Flashcards
What is PED
The responsiveness of quantity demanded to a change in price of the good.
Formula for PED
percentage change QD / percentage change in price
What is perfectly inelastic
0, whatever the price, the same quantity is demanded
What is unitary
1, where a change in price causes exactly the same percentage change in demand.
What is perfectly elastic
unlimited, at p consumers demand an unlimited quantity of the good.
Non-price factors affecting PED
Addictiveness- Products that are addictive tend to have inelastic PED.
Luxury or necessity- Neccesities tend to have inelastic PED whereas luxuries tend to have more elastic PED
Income proportion and price.
Substitutes- If lots of subs available, elastic PED, especially close subs.
Time- PED more elastic overtime, not instant
Significance of PED for firms and governments
for firms- can set price to maximise total revenue.
For gov- Can estimate tax revenue.
Limitations of PED
Other factors- Population
Historical- May not reflect current economic climate.
Unreliable- PED figures are based on estimates.
What is YED
The responsiveness of QD to a change in income.
What is a normal good
A good where the quantity demanded increases in response to an increase in consumer incomes.
What is a luxury good
A good where as income rises, consumers spend proportionally more on the good.
What is a necessity good
A good whereas income rises, consumers spend proportionally less on the good.
What is a inferior good
A good where the quantity demanded decreases in a response to an increase in consumer incomes.
What is cross-elasticity demand
The responsiveness of QD for one good to a change in price of another good.
Memory aid
Party time near Christmas
Positive substitute, negative compliment
