Elasticities

• PED


  % change in quantity demanded / % change in price
• Factors Influencing PED


  -Availability of substitutes

  -Luxury or necessity

  -Proportion of income spent

  -Habit-forming goods/ services

  -How much time has passed since the price change
• Complements


  Goods that are in joint demand because they are related
• Substitutes

  Goods in competitive demand that act as a replacement for another product
• Elastic Demand


  Demand is responsive to changes in price and elasticity is greater than 1

  
• Inelastic Demand


  Demand is not responsive to a change in price

  
• Perfectly Inelastic Demand/ Supply


  PED/ PES = 0 it does not change as price changes

  
• Perfectly Elastic Demand


  PED/PES = infinity quantity changes without a change in price

  
• Factors Affecting PES

  -Production lag

  -Stock levels

  -Spare capacity
• PES


  % change in quantity supplied / % change in price
• XED


  %Change in quantity demanded of Good A/ %Change in price of Good B. Positive means substitutes and negative means complements
• Factors Influencing YED



  Whether the good is a necessity or a luxury
• Inferior Goods


  As incomes increase demand decreases e.g. public transport
• Normal Goods


  As incomes increase demand increases e.g. Ubers