PED and YED

• What does price elasticity of demand measure?

  Change in demand due to price change
• What is elastic demand?

  Large change in demand from price change
• What is inelastic demand?

  Small change in demand from price change
• What is perfectly elastic demand?

  • Price elasticity is infinite
  • Demand changes substantially with minimal price change
• What indicates a good is elastic?

  Price elasticity greater than 1
• What indicates a good is inelastic?

  Price elasticity less than 1
• What does a price elasticity of 0 indicate?

  No change in demand with price change
• What is unitary elasticity?

  Price elasticity exactly equal to 1
• When is demand considered inelastic?

  When there are no good substitutes
• What is an example of a good with inelastic demand?

  Gasoline
• How do price changes affect inelastic goods?

  Little change in demand occurs
• What happens to demand for elastic goods with price changes?

  Substantial changes in demand occur
• What does income elasticity of demand measure?

  Sensitivity of demand to income changes
• What does an income elasticity of demand of 1.50 imply?

  1% income increase leads to 1.5% demand increase
• If average income is $100,000, how many meals are demanded at $101,000?

  71 meals
• How does the demand for inelastic goods behave with price changes?

  Demand remains stable despite price changes
• What are the characteristics of elastic and inelastic demand?

  • Elastic Demand:
  • Large change in demand with price change
  • Price elasticity greater than 1
  • Inelastic Demand:
  • Small change in demand with price change
  • Price elasticity less than 1