2.5 Elasticities of Demand

Price elasticity of demand (PED)

Measure of responsiveness of the quantity of a good demanded to changes in its price.

Income elasticity of demand (YED)

Measure of the responsiveness of demand to changes in income, and involves demand curve shifts.

Inelastic demand

0 < PED < 1

Elastic demand

1 < PED < ♾️

Primary commodities

agricultural products produced in the primary sector of the economy

- PED relatively low

Manufactured products

goods produced in the secondary sector of the economy

- PED relatively high

Normal goods

Goods for which demand goes up when income is higher and for which demand goes down when income is lower.

Luxury goods

Goods and services used to satisfy once and indulgences, where demand changes proportionately greater to the change in income.

- YED > 1

Inferior goods

Goods and services with more expensive and higher quality substitutes. As income rises demand for inferior good fall as consumers are more willing and able to purchase better alternatives.

- YED < 0