quantity demanded changes more than price; $$|PED| > 1$$

quantity demanded changes less than price; $$|PED| < 1$$

change in quantity equals percentage change in price; $$|PED| = 1$$

Perfectly Elastic Demand

quantity demanded changes infinitely with any price change; $$PED = \infty$$

Perfectly Inelastic Demand

quantity demanded does not change with price; $$PED = 0$$

$$PED\ =\ \frac{\%\ \Delta QD}{\%\ \Delta P}$$

$$PES\ =\ \frac{\%\Delta QS}{\%\Delta P}$$

YED Formula (Income Elasticity; Y is a common symbol for Income)

$$YED\ =\ \frac{\%\Delta D}{\%\Delta Y}$$

XED Formula (Cross Price Elasticity - X is a common symbol for Cross-Price)

$$XED\ =\ \frac{\%\Delta Da}{\%\Delta Pb}$$

of substitutes, necessity vs luxury, proportion of income, time period

to respond, spare capacity, stock levels, ease of factor substitution

income and demand have a positive relationship which means YED coefficient is a positive number

income and demand have a negative relationship which means YED coefficient is a negative number

Price of Good A and Demand for Good B have a positive relationship which means XED coefficient is a positive number

Price of Good A and Demand for Good B have a negative relationship which means XED is a negative number

Example of Inelastic Supply

products in short run, diamonds

Price and Total Revenue move in opposite directions

TRT - Inelastic Demand

Price and Total Revenue move in the same direction

Short Run vs Long Run Elasticity

price elasticity of demand and supply are usually more elastic in the long run

Real-World Application: Tax Incidence

incidence (who bears the burden) of tax depends on relative elasticities of demand and supply

Real-World Application: Pricing Strategy

use elasticity to set prices for maximum revenue

Real-World Application: Government Policy

informs decisions on taxation, subsidies, and regulation

Elasticity Flashcards (F25) Flashcards

Student preview

30 questions

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1.

FLASHCARD QUESTION

Front

Elasticity (definition)

Back

measure of responsiveness of one variable to changes in another

2.

FLASHCARD QUESTION

Front

Price Elasticity of Demand (PED)

Back

responsiveness of quantity demanded to a change in price

3.

FLASHCARD QUESTION

Front

Price Elasticity of Supply (PES)

Back

responsiveness of quantity supplied to a change in price

4.

FLASHCARD QUESTION

Front

Income Elasticity of Demand (YED)

Back

responsiveness of demand to a change in income

5.

FLASHCARD QUESTION

Front

Cross Elasticity of Demand (XED)

Back

responsiveness of demand for one good to a change in price of another good

6.

FLASHCARD QUESTION

Front

Elastic Demand

Back

7.

FLASHCARD QUESTION

Front

Inelastic Demand

Back

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