1.5 PED,PES,YED,XED

• PED formula

  • %change in QD/ %change in P
  • PΔQ/ QΔP
• PED along a straight line demand curve

  Elastic: PED > 1

  Inelastic: PED < 1

  Unitary: PED = 1

  
• factors affecting PED

  • availability of substitutes
  • proportion of income the good takes
  • type of good (luxury, addictive, necessary etc)
• YED formula 


  YΔQ/ QΔY
• YED of a normal good


  YED>0 (positive)

  • as incomes increase QD increases
  • as incomes decrease QD decreases
• YED of an inferior good

  YED < 0 (negative)

  • as income increase, QD decreases
  • as incomes decrease, QD increases
• when YED for a good is income inelastic


  YED < 1

  e.g necessities
• when YED for a good in income elastic

  YED > 1

  e.g luxury goods
• XED 


  the responsiveness of QD of one good in relation to a change in the price of a different good
• XED formula


  P(good y) ΔQ(good x)/ Q(good x) ΔP(good y)
• XED for substitutes


  positive XED
• XED for complementary goods


  XED is negative
• XED for unrelated goods


  XED is equal to zero
• factors affecting PES

  • productive capacity (high productive capacity, more inelastic supply)
  • stocks of components/ raw materials/ finished goods (high stock levels = more inelastic supply)
  • degree of factor immobility (difficult to switch jobs = inelastic)