Price, Income And Cross Elasticity Of Demand Flashcards
1
Q
What is price elasticity of demand
A
Price elasticity of demand is a measure of the responsiveness of demand given a price change
2
Q
When is demand inelastic
A
When ped is between 0-1
3
Q
When is demand elastic
A
When ped is over 1
4
Q
When is demand perfectly elastic
A
Ped = 0
5
Q
When is price unitary elastic
A
Ped = 1
E.g 10% increase in price leads to a 10% decrease in demand
6
Q
What are the determinants of ped
A
- number of substitutes-> more substitutes-> more elastic -> as consumers can switch easily
- addictiveness-> if product is addictive -> more price inelastic -> addicts need to feed habit so fuck price
- necessity or luxury -> necessity is more price inelastic whereas luxury is more price elastic
- time -> bare time more price elastic
- proportion of income spent -> more spent -> more elastic demand
- cost of switching
