Price Elasticity and equations Flashcards
PED meaning and equation
ped=measure of the responsiveness of quantity demanded of a product to a change in the in its price
ped=change in %QD/ change in %P
queue before you pee
price inelastic=
example
between 0 and 1
cigarettes
price elastic=
greater than 1 (can be in minus)
price elastic graph is like …
diagonal
price perfectly graph is like
_
price inelastic. graph
\
perfectly inelastic
l
what is YED and its formula
measures its responsiveness of the quantity demanded of a product due to a change in the consumers real income.
YED= %change qd/ %change in real income
what does XED measure and formula
measures responsiveness of the quantity demanded of one good given that there is a change in the price of another good.
XED= % change of quantity demanded Good A
—————————————————————————
% change in price of Good B
factors influencing PED
substitutes- more substitutes more elastic good is
]types of goods + services- demanded for essential items is price elastic.
habit forming good will always be inelastic
percentage of income spent-
time- demanded becomes price elastic in
uses of elastics of demand
income elasticity demand is different for normal goods and inferior goods.
normal goods= income elasticity between 0 and 1 ‘/’
inferior good: less than 0 it is ‘'
price elasticity of demand
more than 1 demand is elastic less than 1 demand is inelastic infinity demand is perfectly price elastic 0 demand is perfectly price inelastic 1 demand is unit price elastic
what does cross price elasticity show?
if goods are substitutes or complements
substitutes positive cross elasticity of demand
complements have a negative cross price elasticity of demand
what do unrelated goods have a cross elasticity of?
0
if price is inelastic what should firms do?
increase price
