Elasticity

?
  • 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…

Comments

No comments have yet been made