Price, income and cross elasticises of demand Flashcards
1
Q
What is PED?
A
PED is measures the responsiveness of demand to a change in price.
2
Q
If PED > 1
A
Elastic demand
3
Q
If PED = 1
A
Unit-elastic demand
4
Q
If PED < 1
A
Inelastic demand
5
Q
If PED = 0
A
Perfectly inelastic
6
Q
PED will be higher
A
- If there are more effective substitutes
- High percentage of peoples income
- Luxury - ( do you need it?)
- Low brand loyalty - low addiction
- Time ( More time you have the more elastic you are)
- Lower the cost of the substitutes
7
Q
What does income elasticity of demand mean?
A
The responsiveness of demand to a change in income
8
Q
What does cross elasticity of demand mean (XED) ?
A
The responsiveness of demand for one good to a change in the price in another good.
9
Q
What does a high positive mean? (XED)
A
Strong substitute
10
Q
What does a low positive mean? (XED)
A
Weak substitute
11
Q
What does close to zero mean? (XED)
A
Independent
12
Q
What does low negative mean? (XED)
A
Weak complement
13
Q
What does high negative mean? (XED)
A
Strong comlement
