Economics- Elasticity

Economics- Elasticity

1. PED- Price Elasticity Of Demand

   • Formula=Percentage change in quantity demanded Percentage change in price
   • Always Negative
   • Less than 1=Price Inelastic More than 1=Price elastic 0=Perfectly Inelastic ∞=Perfectly Elastic -1=Unitary Elastic
   • Definiton-A measure of the sensitivity of quantity demanded to a change in the price of a good or service.
   • Factors affecting PED: Availability of subsitutes, Addictiveness of a product, Time, Income spent on good

2. YED- Income Elasticity Of Demand

   • Positive= Normal Good
     • 0 to +1= Income inelastic- Goods for which a change in income produces a less than proportionate change in demand
     • +1 to ∞=Income elastic- Goods for which a change in income produces a greater proportionate change in demand
   • Negative= Inferior Good
     • An inferior good is a good that we buy because we have too, this is because we don't have sufficient income to buy better versions of the good
     • As income rises demand for the product descreases
   • Formula=Percentage change in quantity demanded Percentage change in consumer income
   • Definition- A measure of the sensitivity of quantity demanded to a change in consumer incomes

3. XED- Cross Elasticity Of Demand

   • Definition- A measure of the sensitivity of quantity demanded of a good or service to a change in the price of some other goods or services
   • Formula- Percentage change in quantity demanded of good A Percentage change in price of good B
   • Less than 0= Complement
     • Complement means Goods for which there is joint demand.
   • More than 0= Substitutes
     • Substitutes means Competing goods
   • Figure size: Less than one=Weak relationship More than one=Strong relationship
   • 0=No relationship