Elasticity

Question 1

PED

Answer 1

> 1 elastic demand -> substitutes
interchangeable goods (diff brands of rice) have perfectly elastic demand

< 1 inelastic demand -> necessities

= 1 unit elastic
Eg: clothing – decrease in price often creates an approximately equal increase in demand

Question 2

IED

Answer 2

measures how much change in income affects quantity demanded

Question 3

PES

Answer 3

measures how much change in price of goods affect quantity supplied

LR elasticity is higher than SR elasticity because firms are able to make more adjustments to production in LR