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What is 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
