2.6 Elasticity Flashcards
Complementary goods
Negative XED; if good B becomes more expensive, demand for good A falls
Cross elasticity of demand
The responsiveness of demand of one good (A) to a change in price of another good (B), calculated by: %change in QD of A divided by %change in P of B
Elasticity
How responsiveness demand or supply is to a change in price
Income elasticity of demand
The responsiveness of demand to a change in income
Inferior goods
YED<0; goods which see a fall in demand as income increases
Luxury goods
YED>1; an increase in income causes an even bigger increase in demand
Normal goods
YED>0; demand increases as income increases
Perfectly price elastic good
PED/PES=Infinity; quantity demanded/supplied falls to 0 when price changes
Perfect price inelastic good
PED/PES=0; quantity demanded/supplied does not change when price changes
Price elastic good
PED/PES>1; demand/supply is relatively responsive to a change in price so a small change in price leads to a large change in quantity demanded/supplied
Price elasticity of demand
The responsiveness of demand to a change in price, calculated by: %change in QD divided by %change in P
Price elasticity of supply
The responsive of supply to a change in price, calculated by: %change in QS divided by %change in P
Price inelastic good
When PED/PES<!; demand/supply is relatively unresponsive to a change in price so a large change in price leads to a large change in quantity demanded/supplied
Substitutes
Positive XED; if good B becomes more expensive, demand for good A rises
Unrelated goods
ZED=0; if the price of good B changes, it has no impact on the demand for good A
