# Price and Income elasticity of demand

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• Created on: 25-03-16 11:04
What is Price elasticity of demand a measure of?
How responsive demand is to a change in price
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What happens when price goes up?
Demand goes down - Price and demand have an inverse relationship
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What does price elastic mean?
Price elastic means that a change in price will lead to a more than proportional change in demand
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What does price inelastic mean?
Price inelastic means that a change in price will lead to a less than proportional change in demand
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How do you calculate PED?
% Change in quantity demanded / % Change in Price = PED
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How do you calculate change in demand?
Change in demand / original demand X 100
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How do you calculate change in price?
Change in price / Original Price X 100
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What factors influence PED?
The availability of substitutes, The price of competitor goods, Time, Branding, Income and the Nature of the good
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Is a luxury good price elastic or inelastic?
Elastic as demand will be sensitive to changes in price
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Will a necessity good be price elastic or inelastic?
Price inelastic as demand will be less sensitive to change in price
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What is income elasticity of demand (YED)?
It is a measure of the responsive of demand to changes in income
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What is a normal good?
When demand for a product increases when incomes increase
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What is an inferior good
When demand for a product decreases as income increases
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What is the formula for Income elasticity of demand?
% Change in quantity demand / % Change in income
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What is the YED coefficient for an Income inelastic product?
-1
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What is the YED coefficient for an Income elastic product/
+1 (Demand changes at a higher proportion than the change in income
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## Other cards in this set

### Card 2

#### Front

What happens when price goes up?

#### Back

Demand goes down - Price and demand have an inverse relationship

### Card 3

#### Front

What does price elastic mean?

### Card 4

#### Front

What does price inelastic mean?

### Card 5

#### Front

How do you calculate PED?