Elasticities Flashcards
Definition of PED
PED measures the responsiveness of quantity demanded given a change in price.
How to calculate PED?
PED= Percentage change in demand divided by percentage change in price (Q BEFORE YOU P)
Is PED always negative?
Yes because of the Law of Demand
Values of elasticities for PED
>1 Demand is price elastic <1 Demand is price inelastic O= Demand is perfectly inelastic Infinite= Demand is perfectly elastic 1= unit price elastic (every % increase in price is the same as the % decrease in demand)
Causes of different PEDs?
SPLAT! Substitutes Percentage of Income Luxury Addictive/ habit forming Time Period
Define Cross Elasticity of Demand (XED)
XED measures the responsiveness of quantity demanded of a good/service given a change in price of another
Calculation for XED?
Q BEFORE YOU P
% change in demand over % change in price
How to calculate percentage difference?
% change= difference/ original x 100
Elasticities of XED
> 1 Demand between the goods is price elastic (strongly related)
<1 Demand between goods is price inelastic (weakly related)
0 Demand between the good is perfectly inelastic (no relationship)
Positive= Substitutes
Negative= Complements
Price Elasticity of Supply
PES measures the responsiveness of quantity supplied given a change in price
Elasticities of PES?
>1 Demand is price elastic <1 Demand is price inelastic O= Demand is perfectly inelastic Infinite= Demand is perfectly elastic 1= unit price elastic (every % increase in price is the same as the % decrease in demand)
Calculation for PES
PES= % change in quantity demanded/ % change in price (Q before you P)
Causes for different PESs?
PSSST
Production lag
Stocks
Spare capacity
Substitutability of Factors of production
Time (short run price is inelastic, long run its elastic)
Definition of YED
YED measures the responsiveness of quantity demanded given a change in income
Calculation of YED
YED= % change in quantity demanded/ % change in income (Q before you P)