PED YED PES

economics

PED

Price Elasticity of Demand, a measure of the responsiveness of quantity demanded to a change in price.

PED formula

% Change in Quantity Demanded/% Change in Price.

elastic demand

PED>1, consumers are very responsive to price changes, so if the price of a good rises a little, the quantity demanded falls by larger percentage. Elastic = sensitive to price. non-essential goods, ex- chocolate

Inelastic demand 

PED<1, consumers are not very responsive to price changes, if the price rises- quantity demanded falls only a little. if the price falls- quantity demanded rises only a little. necessities good, ex- electricity

Unitary elastic demand

PED=1, demand changes exactly as price

TR for Elastic

Total revenue falls if price rises

TR for Inelastic 

Total revenue rises if price rises 

TR for unitary

total revenue stays the same

perfectly elastic demand

demand is infinitely responsive to price changes, infinitely sensitive. price stays the same, consumers will buy any amount.

Perfectly inelastic demand 

PED=0, quantity demanded does not change at all, no matter what the price does, consumers must buy it regardless of price. 

Determinants of PED

availability of substitutes (more elastic), proportion of income spent (large part of income- elastic, small- inelastic), necessity vs luxury, and time period considered (short run- inelastic, long run- elastic), addictiveness of the product (more addictive- inelastic), brand loyalty (less elastic)

TR

total revenue, price*quantity sold, affected by PED when prices change 

YED

Income elasticity of demand, a measure of the responsiveness of quantity demanded to a change in consumers income

YED formula

% Change in Quantity Demanded/% Change in Income.

Normal good (everyday goods)

a good with a positive YED, YED>0, demand increases as income increases, people buy more bcs they can afford better quantity. Ex- electronics

Inferior good

a good with negative YED, YED<0, demand decreases as income increases. People switch to better alternatives as they get richer. Ex- instant noodles

Luxury good

a normal good with YED>1, demand increases more than income, when people earn more, they spend a lot more on these. Ex- sports cars. 

luxury and normal goods tip

all luxury goods are normal goods, but not all normal goods are luxuries.

PES

price elasticity of supply, a measure of the responsiveness of quantity supplied to a change in price.

PES formula

% Change in Quantity Supplied/% Change in Price.

elastic supply

PES>1, when producers can change quantity supplied easily. Ex- toys, uber

Inelastic supply

PES<1, when producers cannot change the quantity supplied easily. Ex- coffee, wheat.

Perfectly Inelastic supply 

PES= 0, when quantity supplied does not change as price changes. Ex- number of seats in a stadium, painting by van Gogh

perfectly elastic supply

PES= infinity, when producers are willing to supply any amount at one specific price. Ex- foreign exchange.

determinants of PES

Time period (short run- inelastic, long run- elastic), space capacity (unused resources can increase supply- elastic, if no- inelastic), mobility of factors of production (high mobility- elastic, low mobility- inelastic), and ability to store stock (can be supplied quickly when stored- elastic, can not be stored, fresh fish- inelastic)

elastic demand 

inelastic demand

unitary elastic demand

perfectly elastic demand

perfectly inelastic demand

normal good

inferior good

luxury good

elastic supply 

inelastic supply 

perfectly inelastic supply

perfectly elastic supply