elastcities Flashcards
inelastic demand
even if price increases or decreases demand remains the same /stable this includes necessity items and where there is limited substitutes
demand is not very responsive to changes in prices
elastic demand
-this is where quantity demanded of product all service is highly responsive to changes in prices if the price of the product increases the demand decreases and if the price decreases demand increases this is when there is many substitutes and the products are non essential
PED
price elasticity of demand measures the responsiveness of quantity demanded given a change in demand
formula PED
% change quantity demanded/ %change price
price elastic
> 1 greater than one-demand is price elastic, quantity demanded changes more than price
price inelastic
<1 smaller than one-demand price inelastic, the quantity demanded change is less than price.
demand perfectly price inelastic
0 demand perfectly price inelastic-regardless of the price changing quantity demanded won’t change
perfectly price elastic
(infinate) demand perfectly price elastic-in extreme examples if perfectly elastic any change in price would have no impact on the quantity demanded.
unitary elastic
1 demand is unitary elastic the value of PED is exactly 1 ignoring the minus for example a decrease in the price of a phone by 10% increases the demand by 10%
examples of:
Elastic demand
Inelastic demand
Unitary elasticity
Perfectly price inelastic
Perfectly price elastic
Luxury items
Food, medicine, utilities
Price increases by 10% and quantity demanded increases by 10%
Life saving medicines, addictive substances
Not essential but when price rises people still willing to pay
Clothes ,electronics price increases find alternatives
YED
measures the responsivness of quantity demanded given a change in income
formula
% change in quantity demanded/ % change in income
normal goods relation to income and demand
positive +, if income increases demand increases
inferior goods relation between income and demand
- inverese relation,income increases demand decreases
normal luxury
bigger than 1 demand is income elastic, increase income increases demand but by alot more, didnt previously purchase
normal necessity
less than 1, demand is income inelastic, increase in income increases demand but not by as much as income increases by- might by slightly more - used to buy before