Flashcards
Section 3 - Elasticity learning objectives 9-16
Cards in this deck (23)
- 1elasticity of demandElasticity of demand shows how responsive the market is to any changes.
- 2types of elasticity of demandPrice Elasticity of Demand
Income elasticity of Demand
Cross elasticity of Demand - 3price elasticity of demand (PED)measures the responsiveness of quantity demanded to a change in price of the good.
- 4Price elasticity of demand formula
- 5Calculate Price elasticity of Demand old demand = 8 units new demand = 6 units old price = $10 new price = $12 hint: (new - old ) / olddemand change = (6-8) / 8 = 0.25
price change = ($12 - $10) /$10= 0.2
PED = 0.25 / 0.2 = 1.25 - 6Degrees of ElasticityElastic
Inelastic
Perfectly elastic
Perfectly inelastic
unitary elasticity - 7elastic demandPED > 1
Elastic demand means the product is price sensitive and a change in price is met with a larger change in demand. - 8Elastic Demand Curve
- 9Inelastic demandPED < 1
If quantity demanded is very unresponsive to changes in price, quantity demanded is inelastic. - 10Inelastic demand curve
- 11perfectly elastic demand curve
- 12perfectly elasticQuantity demanded changes when there is NO change in price.
PED = infinity - 13perfectly inelasticPED = 0
Quantity demanded does not respond to a change in price. - 14perfectly inelastic demand curve
- 15Unitary elasticityPED = 1
when the % change in price is equal to the % change in demand - 16Unitary elasticity demand curve
- 17Determinants of the price elasticity of demand Hint - PPANS1.Price of goods
2.Proportion of income spent on the good
3.Addiction or habit
4. Necessity: The degree of
5.Substitutes; number and closeness - 18Income elasticity of demand (YED)This measures the responsiveness of quantity demanded to a change in income.
- 19Income elasticity of demand derivativesYED is negative for inferior goods
YED is positive for normal goods
YED > 1 for luxury goods - 20Cross elasticity of demand (XED)measures the responsiveness of quantity demanded of one good to a change in the price of another good. The equation is:
% change in Qd of good X
% change in the price of good Y - 21Degrees of Cross Elasticity of Demand (XED)XED > 0, substitutes
XED = 0, independent
XED < 0, complementry - 22zero cross elasticity graph (independent goods)
- 23Price Elasticity of Supply (PES)PES measures the responsiveness of quantity supplied to a change in the price of the good.
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- elasticity of demand, elasticity of supply
- Created by
- Nikolas Reece · Apr 2019
- Updated
- Apr 22, 2019
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