Elasticity

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  • Created by: Jess
  • Created on: 21-04-14 11:58

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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