A measure of the responsiveness of the quantity demanded to a change in price, calculated as the percentage change in quantity demanded divided by the percentage change in price.
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Income Elasticity of Demand (YED)
A measure of the responsiveness of demand to a change in income, calculated as the percentage change in demand divided by the percentage change in income.
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Cross Elasticity of Demand (XED)
A measure of the responsiveness of the demand for one good to a change in the price of another good, calculated as the percentage change in demand for good A divided by the percentage change in price of good B.
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What is the main purpose of Price Elasticity of Demand (PED)?
To determine how changes in price affect total revenue for a firm.
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What does it indicate if Cross Elasticity of Demand (XED) is positive?
The two goods are substitutes.
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What does it indicate if Cross Elasticity of Demand (XED) is negative?
The two goods are complements.
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What are normal goods in relation to YED?
Goods with a positive YED where demand increases as income increases.
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What is the implication of a YED greater than 1?
The good is considered a luxury.
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What influences the Price Elasticity of Demand (PED)?
The availability of substitutes, the necessity of the good, and the proportion of income spent on the good.
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What challenges may affect the usefulness of elasticity concepts to a firm?
Irrelevant or unreliable data, changing determinants of demand, and the assumption of ceteris paribus.
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