Chapter 8 : PED, YED, and XED

• A demand curve shows the relationship between the price of a good and the quantity consumers are willing to buy, with a downward slope indicating that as price increases, quantity demanded decreases

  
• A perfectly inelastic demand curve means the quantity demanded does not change with price, while a perfectly elastic demand curve shows infinite responsiveness to price changes

  
• A perfectly elastic demand curve illustrates that the quantity demanded is infinitely responsive to changes in price

  
• The intersection of supply and demand curves is the equilibrium point, where the quantity supplied equals the quantity demanded, determining the equilibrium price

  
• The area below the demand curve and above the equilibrium price is the consumer surplus, while the area above the supply curve and below the equilibrium price is the producer surplus

  
• The area below the demand curve and above the equilibrium price is the consumer surplus, representing the difference between what consumers are willing to pay and what they actually pay

  
• The area above the supply curve and below the equilibrium price is the producer surplus, representing the difference between what producers receive and what they are willing to accept

  
• Total surplus is the sum of consumer and producer surplus, representing the total benefit to society from the exchange of a good

  
• The percentage change in the quantity demanded of a good X due to a percentage change in the price of a related good Y is known as the cross-price elasticity of demand

  
• A linear demand curve shows a constant relationship between the price of a product and the quantity demanded, with a downward slope indicating that as price increases, quantity demanded decreases

  
• A demand curve illustrates the relationship between the price of a good and the quantity consumers are willing to buy, helping predict consumer responses to price changes

  
• Price elasticity of demand (PED) measures the responsiveness of demand to price changes, with values >1 indicating price elastic goods, <1 indicating price inelastic goods, and =1 indicating unitary elastic goods

  
• Factors influencing PED include:

  • Necessity: necessary goods like bread have inelastic demand
  • Substitutes: goods with more substitutes have more elastic demand
  • Addictiveness: goods like cigarettes have inelastic demand
  • Proportion of income spent: goods taking up more income have more elastic demand
• Peak and off-peak demand influence price elasticity, with peak times like 9am and 5pm for trains leading to more price inelastic demand
• Elasticity of demand affects tax revenue distribution, with inelastic goods burdening consumers more, while elastic goods burden producers more
• Subsidies increase supply and can benefit producers with increased revenue or consumers with lower prices
• Income elasticity of demand measures the responsiveness of demand to changes in income, with inferior, normal, and luxury goods showing different responses