Elasticities (PED,XED,YED,PES) Flashcards
What is Price elasticity of demand (PED) ?
The measure the responsiveness of quantity demanded given a change in price
What is the equation for PED / Price elasticity of demand ?
PED=%change in Q demanded / %change in price
Why is PED always negative ?
Because of the law of demand
Using the PED equation , determine what figures make a PED elastic or inelastic ?
> 1 elastic
<1 inelastic
0 perfectly inelastic
infinite perfectly elastic
1 unit price elastic
When is demand for a product or service going to be price elastic or inelastic (PED) ?
Substitutes - the more of them = the more elastic PED will be
% of income -greater% of income a price change takes , the more elastic PED will be
Luxury goods - elastic / Necessity - inelastic
Addictive good = inelastic / Habit forming = inelastic
What is price elasticity of supply ?
Measures the responsiveness of quantity supplied given a change in price
What is the equation for PES ?
PES = % change in quantity supplied / %change in price
Using the PES equation , determine what figures make PES elastic or inelastic ?
> 1 supply elastic
<1 supply inelastic
0 Perfectly inelastic
Infinite Perfectly elastic
1 Unit price elastic
What determines a good is PES elastic or inelastic ?
Production lags , the longer the lag = inelastic
The larger the stock = the more elastic
The more spare capacity = the more elastic supply
The more substitutable of factors of production the more elastic supply is
What is cross elasticity of demand (XED) ?
Measures the responsivness of quantity demanded of a good and service given a change in price to another
What is the equation for XED ?
%change in quantity A / %change in price of good B
If the XED value is + or - , what type of good are they ?
+ Substitutes
- Complements
Using the XED value , determine what figures makes a good XED elastic or inelastic ?
> 1 demand between goods is price elastic ( strongly related )
<1 demand between the goods is price inelastic ( weakly related goods )
0 demand between good is perfectly price inelastic ( 0 relationship )
What is income elasticity of demand ?
Measures the responsiveness of quantity demanded given a change in income
What is the equation for YED / income elasticity ?
YED = %change in quantity demanded / change in income
If the value of YED is + or - , what type of good will it be ?
Value + Normal good
Value - Inferior good
Using the YED equation , determine what figures make a good Income elastic or inelastic ?
NORMAL GOOD :
>1 demand income elastic
<1 demand is income elastic
INFERIOR GOOD:
>1 demand income elastic
<1 demand income inelastic
0 demand is perfectly income inelastic
