Elasticity of Demand

What is price elasticity of demand?

Responsiveness of consumers to a change in the price of a product

What does PED stand for?

Price Elasticity of Demand

How is PED calculated?

% change in quantity demanded/% change in price

What does it mean if the PED is greater than 1?

Product is price elastic

What does it mean if the PED is less than 1?

Product is price inelastic

What does it mean if a product is price elastic?

Buyers are more responsive to price changes

What does it mean if a product is price inelastic?

Buyers will buy similar quantities despite price fluctuations

What happens when the PED equals 1?

Demand is unit elastic

What does it mean to be unit elastic?

Percentage change in price is equal to percentage change in demand

What is perfectly elastic demand?

Any increase in price causes demand to drop to 0

What is perfectly inelastic demand?

Demand remains constant no matter what

What is a luxury good?

Item with substitutes

What elasticity does a luxury good have?

+2

What does YED stand for?

Income Elasticity of Demand

How is YED calculated?

% change in quantity demanded/% change in income

What is a normal good?

Demand increases when income increases

What YED does a normal good have?

0-2

What is an inferior good?

Demand decreases as income increases

What YED is an inferior good?

-2-0