elasticity Flashcards
Price elasticity of demand
responsiveness of demand to a change in price
PED numbers
> 1 elastic
< 1 inelastic
0 Perfectly inelastic
∞ Perfectly elastic
1 Unit elastic
Cross Price elasticity (Xed)
Measures responsiveness of demand for good X considering a change in price of good Y
Xed formula
% change in quantity of good X / % change in price of good Y
Xed numbers
Close complements - elastic (-1 to -∞)
Weak compliments - inelastic (0 to -1)
Weak substitutes - inelastic (0 to 1)
Close substitutes - elastic (1 to ∞)
Income elasticity of demand (Yed)
Measures relationship between quantity demanded and real income.
Income elasticity of demand (Yed) formula
% change in quantity / % change in income
Price elasticity of supply
Responsiveness of suppliers to a change in price.
Price elasticity of supply formula
% change in quantity supplied / % change in price
Factors affecting price elasticity of supply
Production lag
Spare capacity
Storage
Substitutability of FOPs
Time period
Factors affecting price elasticity of demand
Substitutes available
Proportion of income
Luxury
Addictive
Time
Switching costs
Wage elasticity in demand
Measures responsiveness of labour demanded to a change in the wage rate.
WED = % change quantity demand for labour / % change in wage rate
Factors affecting wage elasticity of demand (SPELT)
Substitutability of labour and capital
PED for final product
Labour costs (as a prop. of total costs)
Time period
Wage elasticity of supply
Measures responsiveness of labour supplied to a change in the wage rate.
WES = % change quantity supplied of labour / % change in wage rate
Factors affecting wage elasticity of supply
Population / demographics
Relative wages in comparison to other jobs
Income (to spend on leisure)
Non-monetary benefits of working
Training and education programmes
