demand and supply Flashcards
what is price elasticity of demand formular?
% change in demand
——————————— X 100
% change in price
what would an outcome of 0 mean for PED?
perfect inelastic - this means that demand will not change depending on the price of a product
what does it mean if the outcome is between 0-1 for PED?
this means that the product is inelastic.
what would an outcome of 1 mean for PED?
that the price is elastic - the % change in price will be the same % change in demand. for example if the price changes by 15% there will be a contraction in demand at 15% also.
what if the PED is larger than 1?
then it is elastic and the change in demand will be effected more due to any change in price.
what is YED?
It measures whether a change in income will impact the amount demanded.
what is the YED formula?
% change in demand
——————————- X 100
% change in income
what would indicate something to be a “normal necessites” ?
a positive answer would suggest a “normal necessities” as income rises, demand increases - between 0 and + 1
what would be the response of demand to buying a luxury good in relation to YED?
the answer would be greater than 1, this means that the %change in demand would be greater than the % change income ( such as buying houses)
what would an inferior good outcome be for YED?
where income rises and demand falls such as tobacco.
what does XED measure?
the responsiveness of demand in relation to good A due to change in price of good B
what is the formula for XED?
% change in price for Good B
what is a subsitute?
when the price of one product increases the demand for another product with increase. For example if rice crispies goes up in price than bran flakes may increase in demand. - a substitue product will come out as POSSITIVE.
what is a complimentry good?
joint demand, so they outcome will be negative if there is a strong relationship between the two the outcome- will be a larger NEGATIVE number.
