elasticities of demand

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Microeconomics

12th

Last updated 8:27 PM on 11/28/22
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10 Terms

1
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price elasticity of demand
responsiveness of quantity demanded following a price change
2
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income elasticity of demand
responsiveness of quantity demanded due to a change in income
3
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cross elasticity of demand
responsiveness of quantity demanded for good A due to price change in good B
4
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determinants of elasticity
substitutes, proportion of income, luxury, addictiveness, time
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PED formula
% change in quantity demanded / % change in price
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elastic PED
PED < -1
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inelastic PED
PED < -1
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total revenue and PED
total revenue decreases as good become more elastic
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importance of knowing PED for firms
- can determine prices in order to maximise total revenue / profit
- can identify whether to not there is competition
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importance of knowing PED for governments
can determine which products to tax