ELASTICITY

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Economics

5th

Last updated 1:26 AM on 1/3/23
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22 Terms

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Price Elasticity of Demand
the percentage/proportionate change in the quantity demanded for a good, caused by the percentage/proportionate change in the price of that good
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Elastic demand
absolute value greater than 1. the percentage change in demand is greater than the percentage change in price
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Inelastic demand
absolute value less than 1. percentage change in demand is less than the percentage change in price.
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Unitary demand
absolute value equal to 1. a proportionate change in quantity demanded is equal to trhe proportionate change in price.
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PED cheat sheet
(+) \= giffen good. (-) \= normal good
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elastic - decrease price TR

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inelastric - increase price TR

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Factors affecting PED
durability
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complimentary/substitute

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brand loyalty

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amount of income spent on good

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Income Elasticity of Demand
the percentage/proportionate change in demand for a good caused by the percentage/proportionate change in income
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YED cheat sheet
(+) \= normal good. - income up, demand up
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(-) \= inferior good. income up, demand down

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Cross Elasticity of Demand
the percentage/proportionate change in demand for one good cause by the percentage/proportionate change in price for another good
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CED cheat sheet
(+) \= substitute good. - price up for A \= demand up B
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(-) \= complimentary good. - price up A \= demand down B

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Perfectly Elastic Demand
Consumers buy as much as they can afford at a given price. but if price changes, they wont buy it anymore. demand falls to 0. in perfect competition, demand curve is perfectly elastic
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Perfectly Inelastric Demand
Percentage change in price causes no change in quantity demanded. consumers continue to buy the product regardless of price
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Who benefits from elasticities knowledge?
* PRODUCERS: CED informs them if their good has close subsitites that consumers could switch to if prices increased
* POLICY MAKERS: if gov changes level of indirect taxes, elasticities inform them how consumer consumption will be affected. Ex: tax on cigs
* RETAILERS: PED helps find will increasing prices affect sales adversely
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