% Change in Demand -------------------------------- % Change in Price Q1-Q2/ (Q1+Q2)/2 -------------------------- P1-Po/ (P1-Po)/2

Change in Qd/average Qd --------------------------------------- Change in P/average P

Economics: Elasticity Flashcards by Jack Castor

More substitutes…

means elastic

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Less substitutes…

means inelastic

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Determinants of Demand Elasticity

Substitutes
Habit forming
Income
Time

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Equation for PED

% Change in Price

P1-Po/ (P1-Po)/2

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Calculation Revenue

Sold * Price

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How to write for IB

Identify Idea-Define
Provide Explanation
Provide Example

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Price Elasticity of Supply (PES)

A measure of the responsiveness of producer to price changes.

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Price Elasticity of Demand (PED)

A measure of the responsiveness of quantity demanded to a change in the product price.

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PED>1=

Elastic

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PED

Inelastic

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PED=1=

Unit Elastic

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Midpoint Method

Change in P/average P

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More horizontal curve=

more responsive, more elastic

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More vertical curve=

less responsive, more inelastic

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Equation for PES

Same as PED, but using Qs

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PES>1

Elastic

PES

Inelastic

Determinants of PES

Mobility of factors of production
Amount of time following a price change
Primary commodities; manufactured goods

Cross Price of Demand (XED)

Measures the responsiveness of consumers of a particular good to a change in the price of a related good, substitutes, or complements.

XED>1

Elastic

XED

Inelastic

Compliments

Negative coefficient

Substitutes

Postive coefficient

Determinants of XED

Substitutability

Dependence (complements)

Income Elasticity of Demand (YED)

Measures the rate of response of quantity demanded due to a raise or lowering in a consumers income.

low income=

demand for inferior goods goes up

high income=

demand for normal goods goes up

Equation for YED

% Change in Qd ----------------------------- % Change in Income

How to find percent change

Difference of two values/ Sum of two values divided by 2