the responsiveness of quantity demanded of a good/service to a change in price
how to calculate Price elasticity of demand
% change in quantity of demand / % change in price
why is the price elasticity of demand always negative
due to the lawofdemand where the quantity of demand and price have an inverse relationship
what value is at perfectly inelastic
0
what value is at inelastic
<1
what value is at unitary
-1
what value is at elastic
>1
what value is at perfectly elastic
infinity
what are the determinants of price elasticity of demand
proportion of income spent, necessity, definition, brand loyalty, availability of substitutes, time,habit forming goods
what is price elasticity of supply
measures the responsiveness of quantity supplied of a good or service to a change in price
how to calculate price elasticity of supply
% change in quantity supplied / % change in price
why is price elasticity of supply always positive
as there is a positive relationship between quantity supplied and price
what are the determinants of price elasticity of supply
Time, availability of stock, spare capacity
what is income elasticity of demand
measures the responsiveness of quantity demanded due to a change in income
when income is positive what is in demand
normal goods
when income is negative, what is in demand
inferoir goods
what type of good is inelastic
necessity
what type of good is elastic
luxury
what is cross elasticity of demand
measures the responsiveness of quantity demanded of good a to the change of price in good b
how to calculate XED
% change in quantity demanded of good a / % change in price of good b
what type of good is it if XED is negative
complimentary good
what type of good is it if XED is positive
Substitute goods
how can price elasticity of demand be useful for producers
price strategies on firms, price volatility in a market following changes in supply, the effect of a change in indirect tax on price and quantity demanded.