Elasticity

Elasticity

1. PED

   • Measures the degree of responsiveness of quantity demanded of a good to a change in it price
     • Sign
       • Always negative due to law of demand
     • Magnitude
       • Price elastic(PED>1)~gentle slope
       • Price inelastic(PED<1)~steep slope
     • Determinants
       • Proportion of income spent on good(larger proportion, more price elastic)
       • Need for good(greater need, more inelastic)
       • Availability and closeness of substitutes(closer more price elastic)
       • Time period(more time, more price elastic)

2. YED

   • Measure the degree of responsiveness of quantity demanded of a good at all price levels to a change in income
     • Sign
       • Positive(YED>0) ~normal goods
       • Zero(YED=0)
       • Negative(YED<0)~inferior goods
     • Magnitude
       • Income elastic(YED>1)~luxury goods
       • Income inelastic(YED<1)~basic necessities
       • Unit income elastic(YED=1)
     • Determinants
       • Degree of necessity of good~higher the degree, lower income elasticity
       • Level of income~depends on consumer's income level

3. XED

   • Measures the degree of responsiveness of quantity demanded of a good at all price levels to a change in price of another good
     • Sign
       • Positive(XED>0)~substitutes
       • Negative(XED<0)~complements
       • Zero(XED=0)~no relation
     • Magnitude
       • Close subsititues/complements(XED>1)
       • Weak substitutes/complements(XED<1)
     • Determinants
       • Degree of closeness between 2 goods~closer,greater magnitude of XED

4. PES

   • Measures the degree of responsiveness of quantity supplied of a good to a change in its price
     • Sign
       • Always positive due to law of supply
     • Magnitude
       • Price elastic(PES>1)~gentle slope
       • Price inelastic(PES<1)~steep slope
     • Determinants
       • Spare capacity~higher spare capacity, more price elastic
       • Factor mobility~greater mobility,more price elastic
       • Availability and durability of stocks~greater A&D, more price elastic
       • Time period~longer time, more price elastic