Elasticity Flashcards
Elasticity
how responsive one variable is to changes in another.
Price elasticity of demand
measure of the responsiveness of a change in demand given a change in price
when is demand price elastic?
> 1
when demand price inelastic?
<1
when is demand perfectly price inelastic?
= to 0
when is demand perfectly price elastic?
♾️-demand changes substantially even with minimal price change
when is demand unit price elastic?
= to 1
equation of PED
%change in quantity demanded/ % change in price
When is ped elastic or inelastic?
Substitute
% of income
Luxury/ necessity
Addiction
Time period
what is Income elasticity of demand ?
measures the quantity demanded to a change in income
equation of YED
% change in q.d/ % change in income
what is the elasticity of demand for a normal and inferior good?
> 1 - demand is income elastic - normal luxury for normal good
<1 - demand is income inelastic - normal necessity for normal good
what is the cross price elasticity of demand?
measures the responsiveness of a good or service given a change in price of another
equation of XED
% change in quantity demanded of good a / % change in price of good b
what good is it if XED is positive
a substitute
