Elasticity Flashcards
What is elasticity?
It’s is the responsiveness of the quantity demanded to a change in one of the factors influencing demand.
What is the general formula for elasticity?
Change in % of quantity demanded/Change in % of price
When is PED elastic?
When it’s value is >1
When is PED inelastic?
When it’s value is <1
What happens when PED = 1
It’s unitary elastic
What are the factors influencing PED
- Degree of necessity
- Brand loyalty
- Habit forming goods
- Substitutes
- Time
- % of income
- Width of market
What are the factors influencing PES?
- Spare production capacity
- Production process
- Ease of switching products
- Time period
What is the relationship between a normal good?
There’s a positive relationship between income and quantity.
When is YED a luxury good?
When YED>1
When is YED a basic good?
When YED is between 0 and 1.
When is YED an inferior good?
When YED<0
What is the formula to calculate XED?
% change in quantity demanded / % change in price
What is a complement good?
When 2 goods are in joint demand, If the price of one increases, the price of the other decreases.
What is an example of a complement good?
When the price of cars increases and the price of petrol decreases.
What is a substitute good?
This is when 2 goods are in competing demand.
