Elasticity Flashcards
elasticity definition
Is a measure of how much the quantity demanded will change if another factor changes.
elasticity of demand
change one variable in response to a change another variable. we calculate elasticity when change in
- price
- people income
- price of related good
Price elasticity of demand Ped
The responsiveness of the quantity demanded to a change in price.
Ped=(% change in QD)/(%change in Price)
always negative
Ped elasticity range
Ped 0 1 = elastic
ped =1 = unitary elastic
factors influence the Ped
- availability of substitutes ( substiture not available = more inelastic)
- time (short run = inelastic, long run = elastic)
- the type of product ( food is inelastic needed to survive, KFC is very elastic)
elasticity and revenue
when demand is elastic, a decrease in P will increase revenue
when demand is inelastic, a decrease of Price will decrease revenue
Income elasticity of demand YED
the responsiveness of demand to a change in consumer incomes
YED = (% change QD) / (% change demand income)
can be negative or positive
YED elasticity range
-1 YED or YED >1 = income elastic
YED >0 normal good
YED
Cross elasticity of demand XED
the responsiveness of a demand in one good to a change in the price of another
XED = (% change in D of our good)/ (% change D another good) can be negative or positive
XED elasticity range
XED>0 substitute
XED
price elasticity of supply PES
The responsiveness of a quantity supplied to a change in price
PES = (% change QS) / (% change of Price)
always positive
factors influence PES
time (shorter= more inelastic)
availability of unused factors of production
mobility of factors of production
availability to store stock
primary commodities vs manufactured good
raw materials: PES low, PED low, any change = big jump
produced good: PED high = elastic
