Price Elasticity of Demand

PED

% change in qty / % change in price

XED

% change in qty demande for good X / % change in price of good Y

YED

% change in qty demanded for good X / % change in peoples income

PES

% change in qty supplied for good X / % change in price of good X

YED = 1

(No particular name) A change in income leads to a proportionately equal change in the quantity demanded.

YED = 0

(No particular name) A change in income leads to no change in the quantity demanded.

Total revenue

(TR) is the amount of money received by firms for selling a good or service. It is the price of the good (P) times the quantity sold (Q): TR = P × Q

Price elasticity of demand

is a measure of the responsiveness of the quantity demanded of a good or service, to changes in its own price.

Cross elasticity of demand

is a measure of the responsiveness of the quantity demanded of a good or service, to changes in the price of another good.

Elasticity

is a measure of the responsiveness of the quantity demanded or supplied of a good or service, to changes in any of the factors that determines it.

Price elasticity of supply

is a measure of the responsiveness of the quantity supplied of a good or service, to changes in its own price.

Recession

is a persistent fall in real GDP in an economy, where unemployment tends to increase. Two consecutive quarters of negative GDP growth is considered a recession.

Economic growth

is defined as positive GDP growth in a specific time period. It usually implies a growth in employment in the economy, and therefore in people's income.

Primary commodities

tend to have relatively lower PED than manufactured goods, as they are necessities for those that consume them and have no substitutes.

PED = 1

unitary elastic / A change in price leads to a proportionately equal change in the quantity demanded.

PED should not

..../......../..... be confused with the slope of the demand curve. While the slope of a linear demand curve is constant, PED varies along its price range.

1

All linear supply curves that pass through the origin, have the same the PES equal to

complements

If XED < 0 (a negative value), then the goods are

unrelated

If XED = 0 , then the goods are

substitutes

If XED > 0 (a positive value), then the goods are

intersecting supply curves

In the case of , the flatter the supply curve, the more elastic it is, at any given price.

YED > 1

Income elastic demand A change in income leads to a proportionately greater change in the quantity demanded.

0 < YED < 1

Income inelastic demand A change in income leads to a proportionately greater change in the quantity demanded.

PED = ∞

Perfectly elastic demand / A tiny change in price would lead to an infinite change in the quantity demanded.

PES = ∞

Perfectly elastic supply A tiny change in price would lead to an infinite change in the quantity supplied.

PES = 0

Perfectly inelastic supply A change in price leads to no change in the quantity supplied.

PES > 1

Price elastic supply A change in price leads to a proportionately greater change in the quantity supplied.

0 < PES < 1

Price inelastic supply A change in price leads to a proportionately smaller change in the quantity supplied.

PES = 1

Unitary elastic supply A change in price leads to a proportionately equal change in the quantity supplied

Primary commodities

are goods that come directly from natural resources or 'land'. They are raw materials.

Manufactured goods

are man-made goods which have been produced from raw materials which have been transformed through a production process.

Income elasticity

of demand is a measure of responsiveness of the quantity demanded of a good or service, to changes in people's income.