Elasticities

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  • Created by: Simone
  • Created on: 16-03-14 16:21
Define PED
measures the responsiveness of quantity demanded to changes in price
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How do you work out a change in percentage?
difference / original X100
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Formula for PED
% change in QD / % change in price
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What sign is PED?
Negative
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When is PED elastic?
greater than -1
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What good is elastic?
Luxury
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When is PED inelastic?
between 0 and -1
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What good is inelastic?
necessities
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Business relevance of PED?
affects pricing decisions?
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If a good is inelastic what should a firm do?
increase price to increase TR
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If a good is elastic what should a firm do?
decrease price to increase TR
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What are the determinants of PED?
1. availability and closeness of substitutes 2. proportion of consumer's total expenditure 3. time
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Explain availability and closeness of substitutes?
the more substitutes the more elastic
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Explain proportion of expenditure
lower proportion, lower elasticity
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Explain time
short term = inelastic, long term = elastic
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Other cards in this set

Card 2

Front

How do you work out a change in percentage?

Back

difference / original X100

Card 3

Front

Formula for PED

Back

Preview of the front of card 3

Card 4

Front

What sign is PED?

Back

Preview of the front of card 4

Card 5

Front

When is PED elastic?

Back

Preview of the front of card 5
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