3.7 - Market Data and Price Elasticity Flashcards
What is Price Elasticity of Demand?
It measures the responsiveness of demand after a change in products own price
How do you calculate PED?
% change in quantity demand/ % change i price
What are the key factors/examples that determine PED of a product?
Cost of switching supplies Availability of substitutes Degree of necessity Time frame when making a choice Brand Loyalty Percentage of income spent Habitual demand
Define inelastic
Demand won’t be affected by change in price
Define elastic
Demand will be affected by change in price
What is the use of PED?
Knowing the potential impact of a change in price on the level of demand
What can firms use to estimate the PED of a product?
Effect of a change in price on total revenue of sales
Price volatility in a market following changes in supply
Effect of a change in indirect tax on price and quantity demanded
What are the limitations of Elasticities?
PED varied by region/time period
Elasticity will vary within product ranges
What is Income Elasticity of demand?
It measures the impact of a change in income on demand
What is the formula to calculate YED?
% change in quantity demanded/ % change in income
What is the range of values for Inferior goods?
-2 to -0.5
What is the range of values for Necessities?
0 to 1
What is the range of values for Luxuries?
1.5 to 2
What is Inferior Goods?
Demand will decline as income increases
What is Necessities?
Demand will increase moderately as income increases