1729222
Description
Mind Map by juliasutton, updated more than 1 year ago
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Created by juliasutton
over 9 years ago
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Price Elasticity of Demand
- A measure of the sensitivity of quantity demanded to
a change in the price of a good or service
- PED
- Always negative
- Due to the relationship between QD and Price
- Ignore the minus sign to interpret
- Due to the relationship between QD and Price
- Always negative
- Types of PED
- > 1
- Good is very responsive
- consumers respond to a change in price
- consumers respond to a change in price
- Very elastic
- Good is very responsive
- < 1
- Not very responsive
- consumers don't respond to a
change in price
- consumers don't respond to a
change in price
- inelastic
- Not very responsive
- = 1
- Unit elasticity
- % change in price and QD are the same
- % change in price and QD are the same
- Unit elasticity
- = 0
- Perfectly inelastic
- Not responsive
- A change in price has no impact on QD
- A change in price has no impact on QD
- Perfectly inelastic
- Infinite
- Very responsive
- if price increases, demand disappears
- if price increases, demand disappears
- Very responsive
- > 1
- Types of goods
- Inelastic
- Habit forming goods
- cigarettes
- cigarettes
- Nescessities
- Habit forming goods
- elastic
- any good with a substitute
- any good with a substitute
- Unit elasticity
- A theory
- Very unlikely
- A theory
- Inelastic
- Total Revenue
- All money recieved
- Price X Quantity
- If a good is elastic
- A fall in price causes
- A large rise in QD
- Total revenue increases
- Total revenue increases
- A large rise in QD
- A fall in price causes
- Rectangle under graph
- If good is inelastic
- A fall in price causes
- a proportionally smaller increase to PED
- Total revenue decreases
- Total revenue decreases
- a proportionally smaller increase to PED
- A fall in price causes
- All money recieved
- Influences of PED
- Luxury and necessity goods
- Availability of
Subsitutes
- if substitutes are available
- strong incentive to shift consumption
- when price rises
- when price rises
- product will be elastic
- strong incentive to shift consumption
- if substitutes are available
- Proportion of income spent on product
- if small, then PED will be inelastic
- e.g. salt
- e.g. salt
- If large, then PED will be elastic
- if small, then PED will be inelastic
- Nature of product
- Habit forming goods
- If it is addictive
- will be inelastic
- e.g. alcohol
- will be inelastic
- If it is addictive
- Habit forming goods
- Durability of product
- if it is long-lasting
- elastic
- can post-pone purchases
- can post-pone purchases
- Furniture
- elastic
- if it needs to be replaces regularly
- inelastic
- e.g. milk
- inelastic
- if it is long-lasting
- Length of time under consideration
- takes time for consumers to adjust sending patterns
- demand is more price
elastic in the long run
- demand is more price
elastic in the long run
- takes time for consumers to adjust sending patterns
- Breadth of
definition of a
product
- If a product is broadly defined
- e.g. fruit
- it is likely to be price inelastic
- although if it is specific
- apples
- it is likely to be more elastic
- apples
- e.g. fruit
- If a product is broadly defined
- Luxury and necessity goods
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