Demand

• Demand 


  How willing and able a consumer is to buy a good or service at a given price and time
• Price elasticity of demand


  PED measures the responsivness of quantity demanced given a change in price
• Contractions and extentions in demand


  This is typically associated with a change in price
• Shifts in demand

  This is typically associated with a change in circumstance
• PED formula

  % change in QD / % Change in price
• Percentage change formula

  New - Old / Old x 100
• PED

  PED most of the time is a negative value as a positive change in one factor will mean a negative change in the other
• Elastic demand


  When Quantity demanded changes proportionately more than the change in price. The value must be greater than 1. This means consumers are responsive to a change in price
• Inelastic demand


  This is when quantity demanded changes proportionately less than the change in price. The value must be less than 1. This means consumers are unresponsive to a change in price
• Perfectly Inelastic demand


  When the QD doesn't change given a change in price e.g life saving medicine
• Factors affecting PED : Substitutes

  The more substitutes there are the more elastic a good will be
• Factors affecting PED : Percentage of income

  The higher the percentage of income a good take, the more elastic it will be
• Factors affecting PED : Luxury/neccesity

  Luxury goods are elastic and necessities are inelastic
• Factors affecting PED : Addictive/habit forming


  If consuming a good has become addictive or is a habit it will have inelastic demand
• Factors affecting PED : Time period

  If a consumer doesn't have the time to look for alternatives a good may have inelastic demand as substitues may only become availabe with time
• Elastic PED and revenue

  If a good is elastic, prices should be reduced as the increase in customers gained far outweighs the decrease in revenue gained from higher prices
• Inelastic PED and revenue

  If a good is inelastic, prices should be increased as the increase in revenue gained far outweighs the decrease in consumers lost
• Income elasticity of demand

  Measures the responsivness of quantity demanded as a result of a change in income
• YED formula

  % change in QD / % change in income
• interpreting a negative YED

  A negative YED means that the good is inferior as if Income increases, QD will decrease (Having a negative YED) and if income decreases QD will increase (Having a positive YED)
• Interpreting a Positive inelastic YED value

  This would make the good normal as if income increases, QD will increase but not as much as income.

  On the other hand if income decreases, QD will decrease more than income.
• Interpreting a positive elastic YED value

  This would make the good a luxury as if income increases, QD will increase by a greater amount. (When consumers gain income they spend on luxuries)

  On the other hand if income decreases, QD will decrease by a greater amount.
• Cross elasticity of demand

  Measures the responsivness of QD of one good given a change in price of another good
• Interpreting negative XED values

  This would make the goods compliments as if the price of good B decreases, The QD of good A increases.

  On the hand if the price of good B increases, The QD of good A decreases
• Interpreting positive XED values

  This would make the goods substitutes as if price of good B increases, QD of good A increases.

  On the other hand if the price of good B decreases, The QD of good A decreases.
• Interpreting a perfectly inelastc good

  If the XED is 0 then the goods have no relationship and it is perfectly inelastic
• Interpreting an elastic XED value

  This would mean that the goods are closley related as demand would change proportinatly more than price
• Interpreting an inelastic XED value

  This would mean that the goods are weakly related as demand would change proportinatly less than price