price and income elasticity

• How are PED values interpreted?

  • PED values are always negative
  • Absolute value is used for interpretation
  • Inverse relationship between price and demand
• What is the PED value for very responsive demand?

  -10
• What is the absolute value for a PED of -5?

  5
• What does a PED value of -1 indicate?

  Unit elastic
• What does it mean if |PED| > 1?

  Demand is elastic
• What does it mean if |PED| < 1?

  Demand is inelastic
• What does it mean if |PED| = 1?

  Demand is unit elastic
• What is the PED value for quite inelastic demand?

  -0.5
• What is the PED value for nearly perfectly inelastic demand?

  -0.01
• What are the interpretations of Income Elasticity of Demand (YED)?

  • YED can be positive or negative
  • The sign of YED is significant
• What is the YED value for a strongly negative good?

  -10
• What type of good is indicated by a YED of -5?

  Very inferior good
• What does a YED value of 0 indicate?

  No relationship
• What is the YED value for a luxury good?

  YED > 1
• What type of good is indicated by a YED of 0.2?

  Normal necessity
• What does a YED value of 2 indicate?

  Elastic (luxury)
• What are the classifications of goods based on YED?

  • YED < 0 → Inferior good
  • 0 < YED < 1 → Normal necessity
  • YED > 1 → Luxury good
• What is the YED value for a somewhat inferior good?

  -1
• What is the YED value for a very luxury good?

  5
• What is the YED value for an extremely luxury good?

  10
• What does a YED value of 0.5 indicate?

  Moderate positive (necessity)
• How does the interpretation of PED differ from YED?

  PED is always negative; YED can be positive
• What is the significance of the absolute value in PED interpretation?

  It indicates the responsiveness of demand