Microeconomics - Formulas Flashcards
Price elasticity of demand (PED)
PED = % change in quantity demanded / % change in price
Income elasticity of demand (YED)
YED = % change in quantity demanded / % change in income
Cross Elasticity of demand (XED)
XED = % change in qty demanded of good A / percentage change in qty demanded of good b
relatively elastic demand curve (PED > 1)
the
change in price leads to an even bigger change in demand
\ shape but less steep
relatively inelastic demand curve (PED < 1)
demand that is relatively unresponsive to a change in
price
\ shape
unitary elastic good (PED = 1)
change in demand which is equal to the change in price
moon crest curve
perfectly inelastic good (PED = 0)
demand which does not change when price changes
| shape
shape
perfectly elastic good (PED = infinity)
demand which falls to zero when price changes
- shape
perfectly elastic good (PED = infinity)
demand which falls to zero when price changes
- shape
Factors that influence PED:
Necessity - will have relatively inelastic demand (even if price increases significantly, consumers will still demand bread and electricity, because they need it)
Substitutes - if the good has more substitutes (e.g. phones) then demand is more price elastic. The more substitutes, the more price elastic the demand.
Addictiveness or habitual consumption - demand for cigs isnt sensitive to changes in price (even with price increases) because they are addictive.
Proportion of income spent on the good - the greater proportion of a consumers income, the more price elastic
Durability of the good - more elastic demand, consumers wait to buy another one
Peak and off-peak demand - during peak times, (e.g. 9am and 5pm for trains) demand for tickets is more price inelastic.