Price Elasticity of Demand (PED) Flashcards
What does Price Elasticity of Demand measure?
PED measures how much quantity demanded changes in response to a change in price
What is Elastic Demand?
When PED is between -1 and - infinity. Demand is very responsive to changes in price
What is Inelastic Demand?
When PED is between -1 and 0. Demand is unresponsive to changes in price
What is Unitary elastic Demand?
When PED = -1
What does an Elastic Demand Curve look like?
Gentle, flatter slope because a small change along the price axis leads to a larger % change along the quantity axis
What does an Inelastic Demand Curve look like?
Steeper slope because a large change along the price axis leads to a smaller % change along the quantity axis
What is perfectly Inelastic Demand?
When PED = 0. Demand will not respond at all to change in price. E.g life-saving medicine
What are the Factors that affect PED
NASBIT Necessity or luxury Addictive or habit-forming Substitutes Brand loyalty Proportion of Income Time
What is PED
the price of elasticity of demand is the responsiveness of a change in demand to a change in price
is a price elastic good responsive or unresponsive
responsive
is a price inelastic good responsive or unresponsive
unresponsive
what is income elasticity of demand
Income elasticity of demand is the responsiveness of a change in demand to a change
in income
what is a inferior good
Inferior goods are those which see a fall in demand as income increases. YED > 0
what is a normal good
With normal goods, demand increases as income increases. YED >0.
what is a luxury good
With luxury goods, an increase in income causes an even bigger increase in demand.
YED > 1.
