2.6 - elasticity Flashcards
Elactisity
Elasticity definition
How responsive demand / supply is in response to a changes in price
Price Elasticity of demand (PED)
Measures how much demand extends/contracts as price changes
Factors effecting PED
Number of substitutes on the market
Luxuries or necessities
Habit forming products
Percentage of your income spent on the product
Equation for PED
% change in QD/% change in price
Values of PED
< 1 = Inelastic
> 1 = Elastic
Income elasticity of demand (YED)
How much QD changes depending on the change in income
Equation for YED
% change in QD / % change in income
Values of YED
> 1 = income elastic, luxury, normal
< 1 = income inelastic, normal
< 0 = inferior good
Factors impacting YED
Type of goods
Preference
Amount of income spent on the good
Cross price elasticity of demand (XED)
The QD of one product in response to the change in the price of another
XED equation
% change in QD of good A/
% change in price of good B
XED values
Positive value - Substitute goods
Negative value - Complimentary goods
Neutral - no relationship
Price elasticity of supply (PES) definition
The responsiveness of supply to a change in the price of a product
PES equation
% change in quantity supplied/
% change in price
