Elasticity
- Created by: Jess
- Created on: 21-04-14 11:58
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Price elasticity of demand: the responsiveness of the quantity demanded to a change in the price of a product
PED = %change in quantity demanded / %change in price
Price elastic: where the percentage change in the quantity demanded is sensitive to a change in price
Price inelastic: where percentage change in the quantity demanded is insensitive to a change in price
PED > 1 elastic
PED < 1 inelastic
PED = 1 exactly proportional
Determinants of price elasticity of demand?
- the availability and closeness of substitutes: the greater number of close substitutes the more likely the demand for a product will be elastic
- the relative expense of the product with respect to income: if the product takes up a small proportion of a person's income than a rise in price is not likely to result in much change in the quantity demanded
- time: in the short term, most consumers find it difficult to alter their spending habits, but over time consumers will find out more possible subsititutes
Income elasticity…
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