2.2 Elasticities

Price Elasticity of Demand (PED)

Price Elasticity of Demand (PED)

The degree of responsiveness of the quantity demanded of a product when there is a change in price.

Elastic PED (-1 ←→ -∞)

When a change in price causes a proportionally larger change in quantity demanded.

Unit Elastic PED(-1)

When a change in price causes a proportional change in quantity demanded.

Inelastic PED (0 ←→ -1)

When a change in price causes a proportionally smaller change in quantity demanded.

Perfectly Elastic PED (-∞)

Any change in the price, the demand falls to 0

Perfectly Inelastic PED (0)

A change in the price causes no change in quantity demanded.

Price Elasticity of Supply (PES)

The degree of responsiveness of the quantity supplied of a product when there is a change in price.

Elastic PES (>1)

When a change in price causes a proportionally larger change in quantity supplied.

Unit Elastic PES (1)

When a change in price causes a proportional change in quantity supplied.

Perfectly Inelastic PES (0)

Any change in price will cause no change in quantity supplied.

Inelastic PES (0 ←→ 1)

When a change in price causes a proportionally smaller change in quantity supplied.

Perfectly Elastic PES (∞)

Infinite quantity supplied at a given price, but none at a lower price.

Income Elasticity of Demand

The degree of responsiveness of the quantity demanded of a product when there is a change in income.

Inferior Good (<0)

A change in income causes a decrease in quantity demanded.

Income-Inelastic; Necessity (0 ←→ 1)

A change in income causes a proportionally smaller change in quantity demanded.

Income-Elastic; Luxury (>1)

A change in income causes a proportionally larger change in quantity demanded.