Ped And Yed Flashcards
Price elasticity of demand
How demand changes when price changes.
Elastic and inelastic products
Elastic: when the change in price affects demand
Inelastic: when can be in price doesn’t affect demand.
Factors influencing PED
-TIME: price elasticity of demand tends to fall over a longer period of time, because consumers are like to turn to substitutes. Ex, oil is inelastic now but in 25 years with electric cars no.
-Competition for the same product. Some businesses face highly price elastic demand for their products. This is because they are in very competitive markets, where their product is very similar to others.
-Branding. Some products are branded. The stronger
the branding, the less substitutes are acceptable to customers. For example, many buyers of Kellogg’s Corn Flakes do not see supermarket own-label brands as good substitutes for Kellogg’s.
•The proportion of income spent on a product.
For inexpensive products, where the proportion of a consumer’s income spent on the transaction is
very small, demand is likely to be price inelastic.
Income elasticity of demand
How demand changes when income changes.
Income elastic / inelastic
Elastic: income change affects demand
Inelastic: Income change affects demand
Calculation of YED
Percentage change in quantity demand / percentage change in income.
Normal and inferior goods
Normal goods: an increase of income = an increase in demand.
Inferior goods: An increase of income = a decrease of demand.
Factors influencing YED
-Necessities: These are basic goods that consumers
need to buy. Examples include food in general, electricity and water. Demand for these types of goods will be income inelastic.
-Luxuries: These are goods that consumers like to
buy fi they can afford them. Spending on these types of goods is discretionary, which means that customers can choose whether or not to make these purchases
