Elasticities of Demand

    Cards (17)

    • Elasticity
      The responsiveness of one variable to a change in another
    • Elasticity of Demand
      The responsiveness of demand to a change in a factor which affects demand
    • Price elasticity of demand (PED)

      The % change in quantity demanded divided by the % change in price
    • Income elasticity of demand (YED)

      The % change in quantity demanded divided by the % change in income
    • Cross elasticity of demand (XED)

      The % change in quantity demanded of Good A divided by the % change in the price of Good B
    • Perfectly inelastic demand
      The result of the calculation is zero.
      The demand curve is a vertical line meaning that demand will not change even if there is an increase in another variable.
      This is because the good is a necessity good with absolutely no substitute or no reasonable substitute.
    • Inelastic demand
      The result of the calculation is less than 1
      The curve is going to be downward sloping with a steep slope
      The good may be a necessity good which has a few reasonable substitutes. Hence demand may change but not by much
    • Unitary Elastic Demand

      The result of the calculation is 1 or -1.
      %change in demand = %change in the other variable.
      The curve has a gradient of 40 degrees
    • Elastic demand
      The result of calculation is greater than one
      That indicates that the %change in demand is greater than the % change in another variable.
      It is downward sloping with a gentle slope.
      Goods with Elastic demand are goods with many readily available substitutes.
    • Perfectly elastic demand
      The result of the calculation is infinity or -infinity
      Demand will change without another change in another variable.
      The curve is a horizontal line.
    • PED(Price Elasticity of Demand)

      += Giffen(hype)
      -= Normal good
    • YED(Income Elasticity of Demand)
      +=Normal Good
      -=Inferior Good
    • XED(Cross Elasticity of Demand)
      +=Substitute Good
      -=Complimentary Good
    • Steps to Calculating Elasticity of Demand
      Step1-Calculate(new-old)
      Step2-Calculate(change/old)*100
      Step3-Aplly the formula e.g %Change of Qd/%change of price
    • PED = Positive the good is a ....
      and if it is negative, it is a
      Giffen for positive and Normal for negative
    • YED if positive it is a
      if negative it is a

      Positive is noramal
      Negative is inferior
    • XED if result is positive it is a and if it is negative it is a 

      Positive for substitute and Negative for complimentary
    See similar decks